Tencent-backed AI firm QuantumPharm’s Hong Kong IPO is first to use year-old listing regime for pre-revenue tech outfits
Tencent-backed artificial intelligence (AI) drug researcher QuantumPharm is raising up to HK$1.13 billion (US$144.5 million) in a Hong Kong initial public offering (IPO) from Tuesday, eyeing the first listing under a new regime for pre-revenue specialist technology firms that was introduced more than a year ago.
The Shenzhen-headquartered company, also known as XtalPi, is offering 187.37 million shares at HK$5.03 to HK$6.03 each. The shares will start trading on June 13.
QuantumPharm is one of only two firms that have applied to list under the Hong Kong stock exchange’s Chapter 18C rule since bourse operator Hong Kong Exchanges and Clearing introduced it in March 2023 to entice technology start-ups to raise capital. Black Sesame International Holding, which makes chips for autonomous driving, is the other candidate.
Wen Shu-hao, QuantumPharm’s chairman, said at a media briefing on Monday that the firm is “very fortunate” to potentially become the first company under Chapter 18C.
“We hope that our successful listing will attract more outstanding and top global technology companies to list under 18C,” Wen said, adding that the firm also hopes to help develop Hong Kong’s scientific sector and talent.
Chapter 18C allows companies with at least HK$10 billion in valuation to sell shares in IPOs, even if they have yet to earn a single dollar in sales. The threshold will be reduced to HK$6 billion if they have at least HK$250 million in sales in the financial year before their IPOs.
The exchange’s rules, among the most stringent in the world, require at least HK$80 million in combined profit in the three years preceding a new listing. Companies qualified under Chapter 18 will be exempt.
“It is strategically important to have the first Chapter 18C successful listing to demonstrate the feasibility and market confidence in this new regime, together with regulators’ vetting processes to attract more issuers to explore this listing method,” said Frank Bi, Asia head of corporate transactions at law firm Ashurst.
The lukewarm response to the new regime up to now has to do with Hong Kong’s overall weak capital market, according to Kenny Ng, a securities strategist at China Everbright Securities International.
“Now the market is slowly picking up, and the mainland’s national policies have been supporting the development of Hong Kong’s capital market, including promoting some large companies to list in Hong Kong,” Ng said. “Hong Kong’s IPO market may see further improvement in the second half of the year.”
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Chinese AI-generated cartoon series broadcast on state television
Chinese AI-generated cartoon series broadcast on state television
However, Ng said Chapter 18C has its challenges, including the limited industries it benefits. The rule applies to applicants in five sectors: hi-tech, advanced hardware and software, new materials, new energy and food and agriculture technologies.
“It has very detailed regulations on industries and businesses,” Ng said. “Therefore, for other companies that do not develop in these industries or fields, the possibility of using this chapter to go public is not very high.”
QuantumPharm will use most of its IPO proceeds to enhance research and development capabilities and provide its solutions.
The company posted an adjusted net loss of 522 million yuan (US$72 million) for 2023, widening from a loss of 437 million yuan in 2022.
Tencent owns 13.66 per cent of QuantumPharm, which also counts HongShan, Google and SoftBank Group among its shareholders.
Founded in 2015 by three quantum physicists at the Massachusetts Institute of Technology, QuantumPharm says it combines quantum physics, AI, cloud computing and robotics to provide R&D services and products for the pharmaceuticals, biotechnology, renewable energy and advanced materials industries.
Citic Securities is the sole sponsor of QuantumPharm’s IPO.
