Subject to responses during the Consultation Period, the revised ESG Reporting Guide (the “ESG Reporting Guide”) set out in Appendix 27 (“Appendix 27”) to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (“Listing Rules”) will come into effect on 1 January 2024 (the “Effective Date”), and apply to ESG reports in respect of financial years commencing on or after the Effective Date.

Key Proposals

As an update from the current “comply or explain” mechanism for climate-related disclosures in ESG reports, the new climate-related disclosures based on the ISSB Climate Standard ¹ will be introduced as a new Part D of Appendix 27. These disclosures will be categorised under four core pillars, namely Governance, Strategy, Risk management and Metrics and Targets. The key proposed disclosures are set out in the table below, including interim provisions for an issuer’s first and second reporting periods following the Effective Date (the “Interim Period”).

Analysis and Takeaways

Recently, thematic investment has become a popular trend and ESG investment is undeniably one of the major investing themes among investors, shareholders and other stakeholders. The Hong Kong Stock Exchange also notes the importance of promoting high standards of ESG practice and disclosure, and has incorporated certain elements of the Recommendations of the Task Force on Climate-related Financial Disclosures (“TFCD“) in the ESG reporting requirements that became effective in July 2020. In November 2021, the Hong Kong Stock Exchange further published a Guidance on Climate Disclosure to promote TCFD-aligned climate change disclosures.

While the Hong Kong Stock Exchange aims to keep up with international developments, it should also take into account the particular circumstances of the Hong Kong market when formulating the ESG reporting framework. The diversified business profile, specialised industry sectors and operating locations of Hong Kong-listed issuers, as well as their applicable laws and regulations, are all key concerns that the Hong Kong Stock Exchange should take into consideration.

In the future, it is expected that ESG and corporate governance matters would continue to be the key focus of the Hong Kong Stock Exchange. The Hong Kong Stock Exchange should also provide more guidance or training to cater for different levels of sophistication for ESG matters of the issuers. The Hong Kong Stock Exchange also encouraged issuers to visit its ESG educational platform, ESG Academy, for guidance materials. Issuers are advised to seek professional support for ESG advisory and reporting to meet the increasingly stringent and granular ESG requirements.

Please contact our Partner Mr. Rodney Teoh for any enquiries or further information.

This news update is for information purposes only. Its content does not constitute legal advice and should not be treated as such. Stevenson, Wong & Co. will not be liable to you in respect of any special, indirect or consequential loss or damage arising from or in connection with any decision made, action or inaction taken in reliance on the information set out herein.

¹ The IFRS S2 Climate-related Disclosures Exposure Draft, as supplemented or modified by deliberations of the ISSB available on https://www.ifrs.org/news-and-events/updates/issb.

² A set of industry-based standards that guide the disclosure of financially material sustainability information by companies to their investors. Effective from 1 August 2022, the SASB Standards are under the oversight of the ISSB.

³ A set of interrelated sustainability reporting standards that enable organisations to report publicly on their economic, environmental and social impacts and contribution towards sustainable development developed by the Global Sustainability Standards Board of the GRI.

Founded in 1978, Millennium Group is a long-established paper packaging solutions provider. Headquartered in Hong Kong, Millennium Group has two production facilities in Guangdong, China and a supply chain management office in Vietnam to provide their global clients with packaging solutions from Vietnam and other ASEAN countries.

Our Partners, Mr. Hank Lo and Mr. Gordon Tsang, together with Associate Mr. Bun Chan, acted as the Hong Kong legal counsel for the underwriter in the Nasdaq Listing.

Please contact Mr. Hank Lo or Mr. Gordon Tsang for any enquiries or further information about this transaction.

The Appeal Panel (Housing) is established under section 7A of the Housing Ordinance (Cap. 283) to determine appeals lodged by tenants against the termination of leases by the Hong Kong Housing Authority. For more information on the Appeal Panel (Housing), please see here.

Terence specialises in corporate finance law and has been advising listed issuers, sponsors and/or underwriters in a broad range of transactions, including initial public offering on The Stock Exchange of Hong Kong Limited, general offer and regulatory and compliance matters.  Terence is also a panel solicitor of the Free Legal Advice Service on Building Management under the Home Affairs Department and a member of the Membership & Corporate Affairs Committee of the Hong Kong Tennis Association.

For more information, please contact Terence Lau at terence.lau@sw-hk.com.

Definition of “Specialist Technology Companies”

The Exchange will adopt the proposed definitions of STCs without amendment,¹ which is defined as “a company primarily engaged (whether directly or through its subsidiaries) in the research and development of, and the commercialisation and/or sales of, Specialist Technology Products (“STPs”) within an acceptable sector of a Specialist Technology Industry”.

STP is defined as “a product and/or service (alone or together with other products or services) that applies Specialist Technology”, and “Specialist Technology” is defined as “science and/or technology applied to products and/or services within an acceptable sector of a Specialist Technology Industry”.²

List of Specialist Technology Industries and acceptable sectors

In respect of the Specialist Technology Industries and acceptable sectors, the Exchange will adopt the proposed list set out in the Consultation Paper with amendments, and the list will be published in the Guidance Letter to be updated from time to time by the Exchange after consultation with the Securities and Futures Commission and with its approval.³ Summary of the list of Specialist Technology Industries and the non-exhaustive acceptable sectors are as follows:⁴

The Exchange has specifically excluded blockchain and digital asset related business in the list as such companies’ success is considered generally attributable to the expansion of mining capacity, rather than the application of new technology, with minimal contribution of research and development (R&D) to the companies’ expected value⁵ .

Applicants falling outside the existing list of Specialist Technology Industries and acceptable sectors

An applicant falling outside the list of Specialist Technology Industries or acceptable sectors above may still be considered as “within an acceptable sector of a Specialist Technology Industry” for the purpose of the definitions of STC and “Specialist Technology” if it can demonstrate that:⁶

(a) it has high growth potential;

(b) its success can be demonstrated to be attributable to the application, to its core business, of new technologies and/or the application of the relevant science and/or technology within that sector to a new business model, which differentiates it from traditional market participants serving similar consumers or end users; and

(c) research and development significantly contributes to its expected value and constitutes a major activity and expense.
Such applicant must submit a pre-IPO enquiry to the Exchange before submitting a listing application under Chapter 18C of the Listing Rules⁷ , and the Exchange will assess by taking into account all relevant facts and circumstances and consult with the SFC and seek its approval.⁸

Companies with multiple business segments

In respect of applicants with multiple business segments, the Exchange will adopt a holistic assessment of the non-exhaustive factors set out in the Guidance Letter and take into account the following additional factors when assessing whether an applicant is eligible for listing under Chapter 18C:⁹

(a) the proportion of the revenue (if any) generated by the Specialist Technology business segment(s) relative to the total revenue of the company (instead of prescribing a “bright line” percentage threshold); and

(b) the reason for retaining the non-Specialist Technology business segment(s) and the history of the company’s operations.

Categorisation of Commercial / Pre-Commercial Companies

The Exchange has adopted its proposal to accommodate the listings of Commercial Companies and Pre-Commercial Companies, with more stringent requirements imposed on Pre-Commercial Companies than Commercial Companies¹¹ , and that all investors (including retail investors) be allowed to subscribe for, and trade in, the securities of Pre-Commercial Companies.¹²

Requirements

The below table sets out a comparison of the key requirements for Commercial Companies and Pre-Commercial Companies to be eligible for listing as set out in the Conclusions:

Additional qualification requirements for Pre-Commercial Companies²⁴

• Primary reason for listing must be for raising funds for the R&D of, and the manufacturing and/or sales and marketing of, its STPs to bring them to commercialisation and achieving the Commercialisation Revenue Threshold (i.e. HK$250 million for an audited financial year);
• Demonstrate, and disclose in its Listing Document, a credible path to achieving the Commercialisation Revenue Threshold; and
• Have available working capital (after taking into account the IPO proceeds of the applicant) to cover at least 125% of its group’s costs (which must substantially consist of general, administrative and operating costs and R&D costs) for at least the next 12 months

Post-IPO lock-up²⁵

Scope of the target persons subject to post-IPO lock-up of STCs is wider than the main board issuers with a longer lock-up period. In particular, the applicable post-IPO lock-up for STCs is as follows:

Analysis and Takeaways

While the value of STCs may be difficult to estimate, due diligence and in-depth research on the capabilities of performance of STCs, as well as the participation of investors with professional experience and industry expertise are crucial to the price setting of shares of STCs. The IPSI mechanism, with a 50% share allocation percentage requirement, introduced by the Exchange in view of overcoming the difficulty in price-setting, has in fact created certain challenges for STC listing applicants as they lose some flexibilities in seeking general investors’ support.

Nevertheless, the introduction of the IPSI mechanism, together with other adjustments made after considering the market feedback, such as lowering the market capitalisation requirement for listing and modifying the requirements for the minimum R&D expenditure ratio, demonstrated the Exchange’s efforts in promoting the feasibility of the new listing regime without compromising the protection offered to investors.

This new route to the market is expected to support some of the most innovative and progressive companies of the future. Since the listing reforms implemented by the Exchange in 2018, Hong Kong has made a great leap forward in catching up with the international capital market’s development progress of regulatory framework to accommodate the ever-changing market needs. The introduction of such series of rules and regulatory frameworks, including this new Specialist Technology chapter, will greatly enhance Hong Kong’s competitiveness as a fundraising market in Asia, and Hong Kong would be able to make an even greater use of its connectivity with Mainland China.

Please contact our Partner Mr. Rodney Teoh for any enquiries or further information.

This news update is for information purposes only. Its content does not constitute legal advice and should not be treated as such. Stevenson, Wong & Co. will not be liable to you in respect of any special, indirect or consequential loss or damage arising from or in connection with any decision made, action or inaction taken in reliance on the information set out herein.

¹ Conclusions, p. 6
² Conclusions, pp. 6 and 7
³ Conclusions, p. 12
⁴ Conclusions, pp. V-2 to V-6, paragraph 7 of the Guidance Letter
⁵ Conclusions, pp. 10 to 11
⁶ Conclusions, pp. 11 and V-7, paragraph 10 of the Guidance Letter
⁷ Conclusions, p. V-7, paragraph 11 of the Guidance Letter
⁸ Conclusions, p. V-7, paragraphs 12 and 13 of the Guidance Letter
⁹ Conclusions, pp. 14 and V-8, paragraphs 16 and 17 of the Guidance Letter
¹⁰ Companies that have achieved meaningful commercialisation of their Specialist Technology Products and achieved a minimum revenue of HK$250 million in the most recent audited financial year, and are also expected to demonstrate year-on-year growth of revenue from the Specialist Technology business.
¹¹ Conclusions, pp. 17-18
¹² Conclusions, pp. 18-19
¹³ Conclusions, pp. 1, 22 to 29
¹⁴ Conclusions, pp. 29 to 31
¹⁵ Conclusions, pp. 2 and 39 to 42
¹⁶ Conclusions, pp. 42 to 43
¹⁷ Conclusions, pp. 45 to 62
¹⁸ Conclusions, pp. 58-59
¹⁹ Conclusions, p. 60
²⁰ Conclusions, pp. 75-84
²¹ Conclusions, pp. 82 to 84
²² Conclusions, pp. 84 to 88
²³ Conclusions, p. 90
²⁴ Conclusions, pp. 63 to 70
²⁵ Conclusions, pp. 93 to 100
²⁶ Key personnel responsible for the STC’s technical operations and/or the R&D of its STP(s) (including the head and the key personnel of its R&D department) whose expertise is primarily relied upon by the company for the development of its STP(s), and the lead developer(s) of the core technologies in relation to the STP(s). In determining whether a person should be designated as a Key Technical and R&D Personnel, an applicant should consider factors including the shareholding of such personnel, his/her remuneration relative to other R&D staff, and his/her seniority.

CBL is a bunkering facilitator in the bunkering industry, headquartered in Malaysia. CBL has established an extensive supply network in South Korea, PRC, Taiwan, Hong Kong, Malaysia, Singapore, Philippines, and Thailand. CBL provides their customer a one-stop solutions for vessel refueling with more options and flexibility in fulfilling their vessel refueling requirements.

Our Partners, Mr. Hank Lo, Mr. Gordon Tsang, and Associate Mr. Andrew Fung, acted as the Hong Kong legal counsel for the underwriter in the Nasdaq Listing.

Please contact Mr. Hank Lo or Mr. Gordon Tsang for any enquiries or further information about this transaction.

The Issuer is a state-owned enterprise 90% owned by the State-owned Assets Supervision and Administration Commission of Neijiang Municipal Government and 10% owned by Sichuan Provincial Department of Finance. It is the major investment and financing entity of the development and construction in Neijiang City.

Donghai International Securities (Hong Kong) Limited, China International Capital Corporation Hong Kong Securities Limited, China Securities (International) Corporate Finance Company Limited, TFI Securities and Futures Limited, Industrial bank Co., Ltd. Hong Kong Branch, Zhongtai International Securities Limited, Shenwan Hongyuan Securities (H.K.) Limited, Dingxin (Securities) Limited, Chief Securities Limited, and Riches Depot Securities Co., Limited acted as the placing agents.

Our team was led by our Partner Mr. Rodney Teoh, supported by team members including Associates Ms. Angela Lau, Mr. Calvin KW Lo, Ms. Audrey Ng, Trainee Solicitor Mr. Austin Kot and Paralegal Mr. Gabriel Yu .

Please contact our Partner Mr. Rodney Teoh for any enquiries or further information.