An Anatomy of the Proposed Chapter 18C of Hong Kong Listing Rules

On October 19, 2022, the Stock Exchange of Hong Kong Limited (the “SEHK”) proposed a new Chapter 18C (“Chapter 18C”) to its Main Board Listing Rules (the “Listing Rules”). The proposal is intended to facilitate fundraising in the Hong Kong capital market for specialist technology companies at pre-commercial or early commercial stage. Chapter 18C is open for public consultation for two months until December 18, 2022 and is expected to be effected in early 2023.

Chapter 18C, as proposed, significantly lowers the revenue threshold to list on the Main Board of the SEHK for qualified companies in five specified specialist technology industries (including next-generation information technology, advanced hardware, advanced materials, new energy and environmental protection, and new food and agriculture technologies).

Unlike companies in traditional industries, specialist technology companies operate in emerging and innovative industries and commit to making long-term investment in the research and development (“R&D”) of advanced technologies. Despite the high growth potential of these industry sectors, specialist technology companies are usually unable to generate sufficient revenue or profit at their early development stages to meet the financial eligibility tests under Chapter 8 of the Listing Rules (“Chapter 8”). As a result, plenty of companies with leading-edge technologies are prevented from accessing the capital markets through listing in Hong Kong, and institutional and public investors’ ability to invest in such companies is also limited.

In the past, many leading technology companies in Asia and worldwide chose to list in the U.S. because of the United States’ disclosure-based (rather than financial performance-based) securities regulatory regime, the less stringent financial eligibility tests of the major stock exchanges (i.e., Nasdaq and NYSE), the relatively high valuations of technology companies, and abundant liquidity in the capital markets.

The industry and financial communities have widely anticipated that the SEHK would create a Nasdaq-like listing platform for technology companies in Asia. The SEHK has heeded such market sentiments in publishing its carefully deliberated Chapter 18C consultation paper, aimed at attracting specialist technology companies to list in Hong Kong. That Chapter 18C was announced on the same day Hong Kong’s new Chief Executive delivered his 2022 Policy Address is a testament to the strategic value of Chapter 18C to Hong Kong’s broader ambition of enhancing its status as a leading international financial center.

In 2018, the SEHK introduced Chapter 18A of the Listing Rules (“Chapter 18A”), which opened doors for pre-revenue biotech companies to list in Hong Kong. Chapter 18A removed the profitability and revenue thresholds, and in turn focused on, among other things, core products, R&D achievements, commercial sustainability, and market valuation of such companies. The success of Chapter 18A stimulated a boom of biotech company listings and vitalized the Hong Kong capital market. Since the introduction of Chapter 18A, more than 50 pre-revenue biotech companies have listed under Chapter 18A, raising more than HK$100 billion. There are still many more companies that have applied or plan to apply for Chapter 18A listing.

With reference to the listing regime under Chapter 18A, Chapter 18C has been tailored for specialist technology companies at pre-commercial or early commercial stage, aiming to create a new platform that fulfills the strong fundraising needs of these technology companies. Chapter 18C will be particularly attractive to technology unicorns and investors focusing on the hard-tech sectors, and is expected to inject fresh energy into Hong Kong’s capital market.

This analysis article comprises two parts: Part I introduces key elements of the proposed Chapter 18C rules and compares them with those under Chapter 8 and Chapter 18A; Part II analyzes the classification of the specialist technology industries covered by Chapter 18C and provides insights in certain key sectors.

I. Introduction to the Proposed Chapter 18C Rules

A. Financial Eligibility Tests

The proposed Chapter 18C requires specialist technology companies to have a trading record period of at least three financial years. This requirement is consistent with the requirements of Chapter 8, but is longer than the two financial years required for biotech companies under Chapter 18A. Chapter 18C sets distinct financial eligibility tests for commercial specialist technology companies (“Commercial Companies”) and pre-commercial specialist technology companies (“Pre-Commercial Companies”).

• Commercial Companies’ expected market capitalization at listing shall be at least HK$8 billion, and their revenue for the most recent financial year shall be at least HK$250 million.
• Pre-Commercial Companies, while not subject to any revenue requirement, are required to meet a much higher market capitalization threshold– their expected market capitalization at listing shall be at least HK$15 billion.

The table below compares the financial eligibility tests under Chapters 8, 18A, and 18C:

For Commercial Companies, the financial eligibility tests under Chapter 18C represent modification of the market capitalization/revenue test under Chapter 8, reducing the revenue threshold for the most recent financial year to HK$250 million (from HK$500 million under Listing Rule 8.05(3)). This modification addresses early-stage technology companies’ pain point of revenue generation and makes it easier for them to cross the revenue threshold.

At the same time, Chapter 18C significantly increases the threshold for expected market capitalization at listing to HK$8 billion (roughly the size of one “unicorn”). This is an indication of the SEHK’s intention to give better protection to investors, by excluding companies with lower valuation.

For Pre-Commercial Companies, Chapter 18C sets an even higher threshold for the expected market capitalization at listing of HK$15 billion (roughly the size of two “unicorns”), in contrast to merely HK$1.5 billion required for biotech companies under Chapter 18A. The high market capitalization thresholds under Chapter 18C reflect the SEHK’s emphasis on the quality of specialist technology companies.

Some industry participants have expressed the view that the proposed market cap thresholds are too high (significantly higher than those set by other major exchanges worldwide), and will likely exclude many well-established specialist technology companies. As part of the consultative process for the proposed Chapter 18C, the SEHK will consider feedback from stakeholders before the market capitalization thresholds are set in the finalized version of Chapter 18C, so as to strike a balance between the quality of the specialist technology companies, and the accessibility of the financing platform.

B. R&D Investment and Working Capital

Chapter 18C requires that specialist technology companies shall have engaged in R&D for at least three financial years prior to listing.

• For Commercial Companies, the R&D investment shall constitute at least 15% of total operating expenditure for each of the three financial years prior to listing.
• For Pre-Commercial Companies, the R&D investment shall constitute at least 50% of total operating expenditure for each of the three financial years prior to listing.

Chapter 18C proposes to rely on quantitative requirements over R&D investment. This is a different approach from the focus on clinical trial progress of core products under Chapter 18A, which requires, among other things, that a biotech company seeking listing shall have developed at least one core product beyond the concept stage, engaged in R&D of such product for at least one year (having completed at least one phase of clinical trial or obtained commercialization approval from the government authority), and registered relevant intellectual property.

In addition, a Pre-Commercial Company seeking listing under Chapter 18C must ensure that it has available sufficient working capital to cover at least 125% of its costs for at least 12 months from the date of publication of its listing document. This requirement is similar to that applicable to a biotech company seeking listing under Chapter 18A and a mineral company seeking listing under Chapter 18. In contrast, a Commercial Company seeking listing under Chapter 18C, just like a traditional company seeking listing under Chapter 8, is only required to ensure that its working capital is sufficient to cover 100% of its costs for at least 12 months from the date of publication of its listing document.

Sidley Comments

Sustained R&D investment on the development, testing, and scalable manufacturing of products is indispensable for a specialist technology company to reach commercialization and secure stable revenue and profit. The SEHK sets out the requirements as to the minimum duration of R&D activities and the minimum proportion of R&D investments and requires disclosure of relevant information (such as the details of R&D activities, industry-specific information, intellectual properties, and risk warnings). For Pre-Commercial Companies, the SEHK requires them to further disclose the stages of R&D for each of their specialist technology products, the development details by key stages and milestones, all relevant risks associated with the commercialization, and an additional warning statement. Such disclosure requirements are similar to those applicable to biotech companies under Chapter 18A.

Also, as with pre-commercial biotech companies, Pre-Commercial Companies are likely to face challenges in meeting their working capital needs. Typically, they have to bear a considerable amount of operating costs or expenses (including without limitation R&D expenses, marketing expenses and management expenses) and mainly rely on equity investment from their shareholders (such as their founders, private equity funds and other pre-IPO investors) or debt financing from third-party financial institutions as sources of capital to cover such costs or expenses, and often incur net operating cash outflows. Therefore, to make sure that Pre-Commercial Companies can continue to operate after listing, the SEHK must be satisfied that their working capital is more sufficient than that of traditional companies.

Commercial Companies are generally in a better financial condition than Pre-Commercial Companies, as Commercial Companies have started generating revenue and have operating costs under control, and are gradually moving towards the normal course of business. Hence, the SEHK treats Commercial Companies in the same manner as traditional companies seeking listing under Chapter 8, without subjecting them to any special working capital requirement.

C. Third-Party Investment:

Chapter 18C requires that a specialist technology company must have received third-party investments of substantial amounts from at least two sophisticated independent investors (the “Pathfinder SIIs”) who have invested at least 12 months before the date of such company’s listing application, each holding such amount of shares or securities convertible into shares equivalent to 5% or more of the issued share capital of the listing applicant throughout the pre-application 12-month period. The SEHK will assess whether an investor is a “sophisticated investor” on a case-by-case basis by reference to its relevant investment experience and knowledge and expertise in the relevant field.

For this purpose, the SEHK consider the following as examples, for illustrative purpose only, of the types of “sophisticated investors”：(a) an asset management firm with assets under management (“AUM”) of, or a fund with a fund size of, at least HK$15 billion; (b) a company having a diverse investment portfolio of at least HK$15 billion; (c) an investor of any of the types above with an AUM, fund size, or investment portfolio size (as applicable) of at least HK$5 billion, where that value is derived primarily from specialist technology investments; or (d) a key participant in the relevant upstream or downstream industry with substantial market share and size, as supported by appropriate independent market or operational data. For the purpose of considering independence, the sophisticated investors must not be a core connected person of the listing applicant (excluding a person being connected only by virtue of holding 10% or more of voting power).

The above requirements are similar to those under Chapter 18A, which requires that a biotech company must have received third-party investments of substantial amounts from at least one sophisticated investor who has invested at least six months before the date of such company’s listing application and retained its shareholder status at the time of listing. That said, Chapter 18C sets out more specific requirements as to the investment amounts. Depending on the expected market capitalization of the specialist technology company at the time of listing, the minimum total investment from all sophisticated independent investors as a percentage of the issued share capital of such listing applicant at the time of listing shall be 10-20% (if the listing applicant is a Commercial Company) or 15-25% (if it is a Pre-Commercial Company).

The table below sets out the required aggregate investment from all sophisticated independent investors:

Sidley Comments

 In lowering or removing the revenue thresholds, Chapters 18C and 18A have focused on the listing applicant’s market capitalization and the underlying market recognition and acceptance, relying more on the valuation of the listing applicant by independent investors in the primary markets. Because the technologies and products of the specialist technology companies and the biotech companies are complex, it is difficult for ordinary investors without professional knowledge to assess accurately the market capitalization of such companies. On the contrary, sophisticated independent investors are usually experienced in the relevant industries, and will conduct corresponding research and due diligence on the business models, products and technologies, management, and financial condition of such companies, which will be helpful for formulating reasonable assessments of market capitalization of such companies.

D. Path to Commercialization:

Chapter 18C requires that a Pre-Commercial Company must disclose in its listing document a credible path leading to achieving the commercialization revenue threshold, and make additional disclosures in its post-listing interim and annual reports on the progress made towards achieving such threshold and updates on any business and financial estimates. This is analogous to the SEHK’s requirements applicable to a biotech company seeking listing under Chapter 18A and a mining company seeking listing under Chapter 18.

Sidley Comments

 Pre-Commercial Companies are subject to more risks than Commercial Companies. Notwithstanding their advanced products and technologies, Pre-Commercial Companies may still have obstacles to monetization or receive wide market acceptance. At times, promising technology companies only generate trivial revenue or are loss-making for an extended period of time due to substantial R&D investment. Seeking listing under Chapter 18C to raise funds for further R&D and subsequent manufacturing and marketing of their products may be an important channel for Pre-Commercial Companies for ultimately achieving commercialization.

To provide sufficient information for public investors to make informed investment decisions, the SEHK proposes to require Pre-Commercial Companies to disclose in detail in their listing documents a credible path leading to achieving the commercialization revenue threshold (such as their framework agreements with potential customers, commercialization timeframe and milestones), and continue to disclose the actual progress after listing.

E. Other Requirements:

In addition to the above-mentioned main requirements on listing eligibility, the Chapter 18C consultation paper also contains some requirements relating to the IPO mechanism. For instance, Chapter 18C requires the allocation of at least 50% of the total number of shares offered in the IPO to independent institutional investors, sets up a special initial allocation and clawback mechanism, requires a minimum free float of at least HK$600 million upon listing, and imposes different Post-IPO lock-up periods for controlling shareholders, key persons, and Pathfinder SIIs.

The table below sets out the required Post-IPO lock-up:

Sidley Comments

 According to proposed Chapter 18C, securities beneficially owned by controlling shareholders and key persons of a specialist technology company prior to the IPO are subject to a post-IPO lock-up period of 12-24 months, significantly longer than that applicable to traditional companies listed under Chapter 8. Such longer lock-up periods are helpful for preventing controlling shareholders and key persons from cashing out stocks within a short period of time after IPO, as such action will damage the confidence of public investors. Chapter 18C, however, stipulates a shorter post-IPO lock-up period of 6-12 months for securities beneficially owned by the Pathfinder SIIs prior to the IPO. This may boost issuers’ liquidity after the IPO and incentivize external investors to make Pre-IPO investment.

II. Brief Analysis of and Insights in Specialist Technology Industries

Chapter 18C covers a wide range of industries including the next-generation information technology, advanced hardware, advanced materials, new energy and environmental protection, and new food and agriculture technologies, significantly wider than the coverage of the previous listing regimes (such as Chapter 18 for mineral companies and Chapter 18A for biotech companies), demonstrating the SEHK’s strong support and encouragement of the listing of specialist technology companies in Hong Kong. Although the inclusion of the new food and agriculture technologies in Chapter 18C arguably exceeds market expectations, such inclusion is quite reasonable, considering the global issues surrounding food security and safety, as well as the correlations between new food and agricultural technologies and other advanced technologies. With the exception of traditional technology, media and telecom, and of Chapter 18A biotech industry, Chapter 18C covers almost all existing advanced technology sectors, attaching great importance to key and core technologies and their practical applications. The SEHK will keep updating the industries and sectors covered by Chapter 18C along with new developments in the future.

The table below shows the five specialist technology industries included in the Chapter 18C and the 19 acceptable sectors falling within each specialist technology industry:

Chapter 18C identifies 19 sectors under the five industries. Particularly, for the advanced hardware industry alone, 9 sectors are identified thereunder. That said, the number “19” does not fully reflect how broad the coverage of Chapter 18C. For example, the semiconductors sector itself under the advanced hardware is a huge technology sector.

The major categories of semiconductor chips which investors are familiar with include memory chips (such as flash memory chips (Flash), random access memory (RAM)), graphic processing chips (GPU), central processing units (CPU), telecommunication chips (Telecom Chips), mining chips, and radio frequency identification chips (RFID). According to the different applications of chips, they can be categorized into automobile chips, autonomous driving chips, AI chips, etc., which can be further subdivided into hundreds of smaller categories. As to whether any company engaged in business involving any type of the above-mentioned semiconductor chips (whether involving leading-edge technology or not) can be viewed as compliant with Chapter 18C requirements – it can only be determined by real-world implementation of Chapter 18C and through SEHK’s vetting process. These types of questions will also represent a challenge for Chapter 18C market participants and the SEHK. Some other sectors, such as aerospace technology, will face similar questions, as they also cover many sub-categories.

In addition, the five major industries and 19 sectors covered by Chapter 18C are not mutually exclusive; instead, they overlap. Some are described from an application (i.e., functional) perspective, such as cloud-based services, advanced transportation technology, advanced manufacturing, aerospace technology, new energy storage and transmission technology, and new agricultural technology, etc. Others are described from a technological perspective, such as artificial intelligence, semiconductors, quantum computing, smart glass, and nanomaterials. Under such different classification criteria, these sectors inevitably intertwine with each other. For example, aerospace technology and advanced manufacturing would both involve semiconductor technology; new agricultural technology would most likely intertwine with robotics and automation, cloud-based services, and advanced transportation technology; artificial intelligence would eventually facilitate and integrate into all of the other 18 sectors (perhaps with the exception of quantum computing).

In the case of a new agricultural technology company that uses: (1) drones to monitor crop status and weather conditions over farmlands, (2) edge computing chips to process the initial data, (3) advanced optical fiber communication technology to transmit the relevant data to the clouds, and (4) artificial intelligence to analyze the big data, it will be an interesting intellectual challenge to work out under which sector, or even which industry, such company should be classified when it applies for listing under Chapter 18C.

The SEHK has established an internal panel to review whether applicant biotech companies are eligible to list under Chapter 18A. Compared with Chapter 18A, Chapter 18C covers a much wider range of industries involving many overlapping sectors. As a result, it may be difficult for the SEHK to establish an internal panel as it did for its Chapter 18A review. In addition, for the biotech industry, as there are independent competent government authorities (the U.S. Food and Drug Administration (FDA), the State Food and Drug Administration of China (SFDA), and the European Medicines Agency (EMA)) to review and approve the relevant drugs or medical devices, the SEHK, when reviewing Chapter 18A listing applications, may rely on these competent authorities for substantive review, while focusing on the procedural compliance review.

In contrast, there are by and large no government authorities comparable to the FDA, the SFDA, or the EMA to review and approve the corresponding key and core technologies or products of the industries covered under Chapter 18C. It remains to be seen how the SEHK will, in practice, review Chapter 18C listing applications. In the absence of such competent authorities to define and review the advanced and complex technologies and products, it is expected that the SEHK may rely more on the sponsors, industry consultants, industry associations, and other non-governmental or semi-governmental organizations to verify the relevant industry rankings and the superiority of the relevant technologies and products, and determine under which category of the specialist technology technologies/sectors the listing applicant may be classified. In such context, the expertise and insights of these market participants in the relevant industries will be critical.

Drawing from the Chapter 18C consultation paper, and on the basis of the classification of the specialist technology industries by the SEHK, we hereby select the following sectors to illustrate their special characteristics under Chapter 18C.

A. Cloud-based Services

1. Industry overview

Cloud computing involves the access and use of servers, networks, storage capacity, development tools and applications via the internet. Public “clouds” enables end users to access data and application programs almost anytime and anywhere without having to be in physical proximity to computer hardware, bringing great flexibility to corporate and individual users, as well as simplifying and expanding user scenarios.

2. Business models

Although cloud technology has been in use since the 2000s, software companies have more recently started offering software through the clouds with business models built on subscriptions rather than outright purchase of software. Cloud computing companies provide their services by way of an “as-a-service” model, on a scale and complexity that is much larger than that of on-premises providers.

Examples of “as-a-service” business models enabled by cloud technology:

3. Commercialization

The cloud computing market is highly competitive, with a few U.S. companies dominating the global market. In order to stand out in the fierce competition, a company needs to be able to scale up its service offering quickly, acquire high market share, and sustain high revenue growth in the early stage of operation. Key obstacles for a cloud-based software company to achieve meaningful commercialization include: (1) the high expansion costs, including those of a large quantity of servers and infrastructure; (2) the challenging customization attributed to the evolving user needs and market trends; and (3) the need for high-caliber R&D personnel and sales and marketing staff.

The SEHK’s research has not identified any global or regional authority that governs the construction of a cloud infrastructure or the development of applications within the cloud. However, data privacy and security issues associated with cloud-based services may attract the jurisdiction and attention of local regulatory authorities.

B. Electric and Autonomous Vehicles

1. Industry overview

There are two types of electric vehicles (EVs), namely all-electrical vehicles, or battery electric vehicles, and plug-in hybrid electric vehicles. The EV industry has experienced rapid growth in recent years. For example, the core of a vehicle’s architecture has been gradually shifting to e-drive modules and systems, and cable harness and braking systems are being replaced by other technologies. Much of the automotive R&D has been focusing on battery and charging solutions.
Autonomous driving is the capability of a car to drive partly or fully by itself, with limited or no human intervention. Founded in 2014, the Society of Automotive Engineers (SAE) established levels ranging from L0 (no automation) to L5 (full automation) to describe the capabilities of automotive automation. Today, the focus of R&D of autonomous vehicles (AVs) is shifting to higher levels of automation or even full automation in terms of execution of steering and acceleration/deceleration, monitoring of driving environment, fallback performance of dynamic driving task, and system capability, enabling a vehicle to handle a much greater range of driving scenarios.

2. Business models

Automobile manufacturers can be divided into traditional manufacturers, EV-only manufacturers and specialist EV manufacturers. The traditional manufacturers are now expanding their businesses to include EV business segments, whereas the recently emerging EV-only manufacturers (e.g., Tesla, NIO, BYD, etc.) and specialist EV manufacturers (e.g., Rivian Automotive, which develops fully electric sport utility and off-road vehicles) are achieving a growth in their market shares.

3. Commercialization

Some of the main challenges to the commercialization of EV and AV businesses are the huge investments required for capital expenditures and the relatively long payback period. In addition, owing to the complexity of automobile technologies, key factors to a successful commercialization of EVs and AVs also include a stable supply of raw materials and the availability of core technologies.

Whilst EV sales made up only 8.6% of the global automobile market in 2021, the EV industry is expected to be able to benefit from the government’s investments in charging infrastructure, an increasing customer demand, supportive government policies, and breakthroughs in emerging technologies.

C. Semiconductors

1. Industry overview

Semiconductors are usually comprised of silicon, whose electrical properties allow them to be integrated into electric components (ICs) and used for numerous technological applications such as amplification, switching and energy conversion, fueling leading-edge technological advances in next-generation communications (such as 5G broadband cellular networks), IoT (internet of things) and quantum computing. The semiconductor production process consists of three phases: design, fabrication, and assembly, testing, and packaging (ATP).

Lately, new technologies have driven innovations in the chip making industry in terms of chip structures, compound semiconductors based on silicon and non-silicon materials, and application-specific integrated chips. The smaller chip structures are expected to be used in 5G infrastructure and quantum computing; the compound semiconductors can be used for applications requiring high power and frequency; and the application-specific integrated chips are specialized for artificial intelligence and cloud computing applications.

2. Business models

Production of semiconductors relies on a supply chain of semiconductor manufacturing equipment; raw materials, fabrication materials and packaging materials; electronic design automation (EDA); and intellectual property (IP) related to chips.

3. Commercialization

The long development cycle of a semiconductor company requires a sustainable inflow of huge capital investments. Fairly high R&D and fabrication costs have created high barriers for new manufacturers to enter the fabrication market, discouraging many R&D and fabrication companies. Besides, due to the nature of the semiconductor industry, semiconductor companies are required to maintain a robust high-caliber R&D talent pool, which is essential to a successful commercialization.

The pathway to commercialization of semiconductor companies lies in sufficient funds for R&D investments and talent recruitment. For example, companies that focus on specialized applications may invest in developing leading-edge chips for areas with burgeoning growth (including AVs, IoT, artificial intelligence, and quantum computing). Companies that focus on mature chips, on the other hand, may invest in fabrication facilities and equipment to expand their production capacity in order to meet the increasing demand for semiconductors in recent years.

D. Synthetic Biological Materials

1. Industry overview

Synthetic biology, which can be defined as “the design and construction of novel artificial biological pathways, organisms and devices, or the redesign of existing natural biological systems,” has emerged to integrate with material science to redesign living systems as dynamic and responsive materials with emerging and programmable functionalities. Synthetic biological materials will (1) use genetic editing to achieve rapid expansion of materials diversity; (2) create new biological materials with unique features; and (3) lessen environmental impact in the manufacturing of materials by reducing mining and the use of carbon fuel.

2. Commercialization

Synthetic biology companies have proliferated over the past decade, while the synthetic biology industry still remains relatively new. Synthetic biology companies typically need quantities of investment prior to commercialization, due to the long research and development cycles and the regulatory approval cycles of synthetic biological materials, as well as the enormous advanced technologies and talents required upfront. In recent years, an increasing demand for synthetic biological materials has been seen, particularly in terms of environmental protection, sustainable development, and functional materials. Examples include bio-rubber tires and bio-based cosmetic materials.

Still, the successful commercialization of synthetic biological materials depends a great deal on factors such as the availability of technology and talent, government regulations, a comprehensive ecosystem, and market acceptance.

E. New Energy

1. Industry overview

New energy can be defined as the production of energy from natural sources or processes that are constantly replenished, where the use of such energy generates no or low greenhouse gas emissions. Examples of new energy sources include wind, solar, bioenergy, hydropower, and hydrogen.
Investment in renewable power and fuels has seen substantial growth in recent years, as organizations internationally work towards global net zero emissions. Solar and wind power have great market potential, which now collectively provide only about 10% of the world’s total electricity. New infrastructure and technologies are being deployed to improve production processes. The next-generation solar and wind energy technologies are going to utilize floating solar photovoltaics and floating offshore turbines. Hydrogen energy, as the cleanest energy source, can also be widely used in vehicles for passengers and goods.

2. Business models

The value chain of the new energy industry comprised the upstream process, the midstream production process and the downstream process.

The table below shows examples of some specific business models and their relevant new energy sources:

3. Commercialization

The construction and development of a new energy project typically requires long timeframe and high upfront capital input, which may not attract sufficient investments. Nevertheless, global environmental issues, technological innovations in the energy sector, and favorable policy initiatives may bring down the costs of new energy projects. These factors will create markets for new energy technologies and fuel the industry’s long-term growth.

At present, the market has made many innovations in the development of energy transmission and distribution technology (e.g., decentralized energy systems and smart grid), and storage of new energy (e.g., distributed energy storage, long-duration energy storage, and shift from lithium-ion batteries), which have achieved successful commercialization.

F. New Food and Agriculture Technologies

1. Industry overview

The food and agriculture (agri-food) industry comprises agriculture, farming, and food processing activities. Technological shifts in agri-food aim to deliver an efficient and productive system while limiting the adverse impact on the environment. Next-generation information technology and advanced hardware innovations have supported the development of new agri-food technologies, including synthetic biology, artificial intelligence, robotics and IoT, and aerospace technology.

2. Business models

The key stages along the agri-food value chain include agricultural inputs, on-farm and aquaculture, food processing, food supply chain, and downstream delivery.

3. Commercialization

In the process of commercialization, new agri-food technology developers are inevitably faced with obstacles such as technical limitations, declining global investments, and talent shortage. Moreover, like in any other leading-edge field, developers require substantial R&D investments. To successfully commercialize those technologies, companies need to devise appropriate business models that are resilient, sustainable, and scalable so as to achieve “multiple-win” goals. For example, developers who implemented in their farms new agriculture technologies that have already been commercialized, can secure greater returns on investments in farms and land use with fewer inputs. Similarly, strong capital investments will bring about the realization of economies of scale and, subsequently, significant cost cuts and operation efficiency increases. For example, in recent years, new food technologies such as meat substitutes, owing to their proven technical viability, have been more prevalently marketed and seen considerable market prospects.

Sidley has extensive experience and solid technical knowledge across different practice areas within the technology sector. We have represented numerous technology companies in their listings or dual listings in Hong Kong and/or the United States. Our team is uniquely positioned to advise on the listing of specialist technology companies, with many team members having obtained advanced degrees in specialist technologies, accumulated practical R&D experience in key and core technologies, and owned various specialist technology invention patents. As a recognized market leader, the Sidley team has also achieved great results in practice in many innovation areas set out in Chapters 18A, 18B, and 19C of the Listing Rules released by the SEHK over the past few years.