Artificial intelligence drug researcher QuantumPharm, backed by Tencent, is making waves in the tech startup world with its groundbreaking initial public offering (IPO) in Hong Kong. The company aims to raise up to HK$1.13 billion (US$144.5 million) through the IPO, which will be the first listing under a new regime for pre-revenue specialist technology firms introduced over a year ago. QuantumPharm, also known as XtalPi, plans to offer 187.37 million shares at a price range between HK$5.03 and HK$6.03 per share, with trading expected to commence on June 13.
QuantumPharm is one of only two firms that have applied to list under the Chapter 18C rule of the Hong Kong Stock Exchange. This rule, introduced in March 2023, was intended to attract technology startups to raise capital. The other candidate applying for listing under Chapter 18C is Black Sesame International Holding, a company that specializes in autonomous driving chips.
During a media briefing, QuantumPharm’s chairman, Wen Shu-hao, expressed his excitement at the prospect of becoming the first company to list under Chapter 18C. He stated, “We hope that our successful listing will attract more outstanding and top global technology companies to list under 18C… We also hope to help develop Hong Kong’s scientific sector and talent.”
Chapter 18C allows companies with a valuation of at least HK$10 billion to sell shares in IPOs, even if they have yet to generate any sales revenue. However, the threshold is reduced to HK$6 billion if the companies have at least HK$250 million in sales in the financial year prior to their IPOs. To qualify for listing under Chapter 18C, companies typically need to have made at least HK$80 million in combined profit over the preceding three years. However, companies qualified under Chapter 18 are exempt from this requirement.
According to Frank Bi, the Asia head of corporate transactions at law firm Ashurst, it is strategically important to have the first successful listing under Chapter 18C. This will demonstrate the feasibility and market confidence in the new regime, attracting more issuers to explore this listing method. Kenny Ng, a securities strategist at China Everbright Securities International, emphasized that the lukewarm response to the new regime thus far is due to Hong Kong’s weak overall capital market. However, with the market slowly picking up and mainland China’s policies supporting Hong Kong’s capital market development, Ng believes that the IPO market in Hong Kong may see further improvement in the second half of the year.
It is worth noting that Chapter 18C has its challenges, including the limited industries it benefits. The rule applies to applicants from five sectors: hi-tech, advanced hardware and software, new materials, new energy, and food and agriculture technologies. Ng explains that the detailed regulations on industries and businesses make it difficult for companies outside these sectors to utilize Chapter 18C to go public.
QuantumPharm intends to use most of the IPO proceeds to enhance its research and development capabilities and provide solutions. The company recorded a net loss of 522 million yuan (US$72 million) in 2023, widening from a loss of 437 million yuan in 2022. Tencent, with a 13.66% stake, is among QuantumPharm’s shareholders, along with HongShan, Google, and SoftBank Group.
Founded in 2015 by three quantum physicists at the Massachusetts Institute of Technology, QuantumPharm combines quantum physics, AI, cloud computing, and robotics to provide research and development services and products for the pharmaceuticals, biotechnology, renewable energy, and advanced materials industries. Citic Securities is the sole sponsor of QuantumPharm’s IPO.
As QuantumPharm blazes a trail in technology startup IPOs under the Chapter 18C regime, its success holds the potential to attract more innovative companies to list in Hong Kong. With the support of regulators and the development of Hong Kong’s capital market, the IPO market in this vibrant city may see significant growth in the near future.
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