More than a year after the launch of Chapter 18C of the Listing Rules, Tencent-backed AI drug researcher QuantumPharm has finally debuted on the HKEX as the first IPO via the new regulations.
One of the IPO’s lead partners said the market’s lukewarm response to Chapter 18C was more due to the overall weak capital market and the different requirements compared to Chapter 18A.
QuantumPharm debuted on the HKEX on 13 June, raising HKD989 million (USD127 million) from the issue of 187 million shares at HKD5.28 apiece.
Sidley Austin acted as QuantumPharm’s Hong Kong and US counsel, and wrote the prospectus. Ding Meng, one of the IPO lead partners based in the Hong Kong office, emphasised the increased communication and interaction with the HKEX vetting team during the IPO process and the complexities in drafting a prospectus that accurately described the scientific and technological content, nature and scope, while also making it understandable for the public.
“The Chapter 18C specialist technologies [regulation] covers five broad industries and 20 acceptable sectors … Each category of technologies is also deeply rooted in hard-to-understand sciences, which the general investing public is not familiar with and not used to encountering,” he said.
In addition to Sidley Austin, Fangda Partners advised QuantumPharm on PRC law, while Maples Group advised on Cayman Islands law. Herbert Smith Freehills advised the sole sponsor CITIC Securities and overall co-ordinators on Hong Kong and US law, while JunHe acted as the PRC counsel.
After QuantumPharm’s IPO, Black Sesame International is next in line, having also passed its hearing to apply for listing under Chapter 18C. To date, they are the only companies that have submitted forms under this mechanism.
In contrast, after the launch of Chapter 18A in April 2018, five companies successfully listed in its first year, followed by nine, 14, 20, eight, and seven companies making their debuts in the next five years, respectively.
Ding said the early implementation of Chapter 18A coincided with a bull market at that time, and the market downturn since then had affected the overall capital markets. However, he also agreed Chapter 18C set relatively high market capitalisation requirements.
The Listing Rules shows that the applicants for Chapter 18C are divided into “commercial company” and “pre-commercial company”, with market capitalisation thresholds of HKD6 billion and HKD10 billion, respectively, which are much higher than the HKD1.5 billion required under Chapter 18A.
“A Chapter 18A company needs to have its core product ‘endorsed’ by a competent authority (e.g., the USFDA or PRC NMPA) which is an independent third-party governmental authority,” said Ding. “Such a requirement significantly reduced the HKEX’s burden to evaluate the medical validity of such Chapter 18A company’s products.”
However, as Chapter 18C has no equivalent concept, the HKEX thus relies more on a primary market valuation to assess the validity and future success of applicants, Ding added.
Winnie Han, HKEX’s head of China issuer services and senior vice president of global issuer services, previously said many companies had intended to pursue an IPO through the Chapter 18C route when they approached the HKEX for consultation.
However, their businesses had grown within a year or two and were able to fulfil listing requirements under another regime – Chapter 8 – instead.
Despite room for fine-tuning of Chapter 18C, Ding said many companies were waiting to see how IPO debutants performed before they dipped their toes in. He expected more hard tech companies to consider Chapter 18C listings as business valuations and the market improve.
