A decade ago, a founder who wanted to raise capital against a Hong Kong–listed holding almost always held shares in a company with earnings. Since 2018, that has changed. Two reforms to the HKEX Listing Rules — Chapter 18A for pre-revenue biotech, and Chapter 18C for Specialist Technology — have brought a generation of pre-profit issuers to the Main Board, and with them a distinct financing question: can a position in a company that does not yet make money be used as collateral, and if so, on what terms?
The short answer is that it often can, but that these names sit at the conservative end of a lender's spectrum, and for reasons that are structural rather than incidental. Understanding why is more useful than any headline number — and, as always on this site, there is no headline number: no published rate, no LTV grid, and no universal figure. What follows is the framework a lender brings to a pre-profit position, not a schedule of promises.
What Chapters 18A and 18C actually are
Chapter 18A of the HKEX Listing Rules, introduced in 2018, permits pre-revenue biotech companies — issuers developing therapeutics, medical devices, or diagnostics that have not yet reached commercialisation — to list on the Main Board despite failing the conventional financial-eligibility tests. Their stock ticker carries a "-B" marker, and their defining characteristic, from a lender's point of view, is that their value rests almost entirely on the expected outcome of events that have not yet happened: a clinical-trial readout, a regulatory approval, a licensing deal.
Chapter 18C, the Specialist Technology regime effective from 2023, extended a similar logic to companies in fields such as advanced hardware, advanced materials, new energy and environmental protection, new-generation information technology, and advanced manufacturing. It distinguishes between "Commercial" and "Pre-Commercial" companies, with the pre-commercial cohort — those below a defined revenue threshold — subject to a higher market-capitalisation bar and additional safeguards precisely because they, too, are valued on promise rather than proven cash flow. For the purposes of financing, a pre-commercial 18C name and a pre-revenue 18A name rhyme: both are collateral whose worth is contingent.
Milestone risk: the defining variable
The single feature that sets these positions apart is what a lender thinks of as binary, event-driven volatility. A diversified industrial or a long-listed bank moves in percentages; a pre-revenue biotech can move in multiples on a single Phase III result, and can fall by a large fraction of its value in a session if a trial misses its endpoint or a regulator declines an application. The distribution of outcomes is not the gentle bell curve of a mature large-cap — it is bimodal, clustered around "the science worked" and "it did not."
A lender secured against such a position is, in effect, short that binary event, because the collateral can lose a large share of its value precisely when the borrower is least able to top it up. The rational response is not to refuse the position but to price the risk: a wider haircut, a lower indicative loan-to-value band, closer attention to the tenor relative to the issuer's event calendar, and careful thought about what margining or collateral-cure mechanics apply if the price gaps. This is why a Chapter 18A or pre-commercial 18C name is routinely financed far more conservatively than a stable holding of the same market value — often at roughly half the band a comparable position size in a mature, cash-generative sector might support. That ratio is illustrative, not a quote; the actual figure is reviewed one ticker at a time.
Liquidity, free float, and the event calendar
Milestone risk does not sit in isolation. The same properties that govern any collateral — free float and average daily traded value — apply here too, and they often cut against a pre-profit name. Many recently-listed biotech and specialist-technology issuers have a large founder or cornerstone block, a modest genuine free float, and thinner turnover than their market capitalisation implies. A position that is a small multiple of daily traded value in an index heavyweight might be many weeks of turnover in a young 18A name, which compresses the band further and shortens the tenor a lender is willing to write. Our companion note on which HKEX stocks can be pledged sets out that free-float and traded-value screen in full; for pre-profit issuers, it is simply applied with more caution.
The event calendar becomes a structuring input in a way it rarely is for a mature company. A lender wants to know where the tenor of a proposed facility sits relative to a known readout, an approval decision date, or a data-conference presentation, because a facility that matures the week before a pivotal result is a very different proposition from one that matures a year clear of any catalyst. None of this is a reason a pre-profit position cannot be financed; it is the reason the conversation is more detailed.
Lock-ups, insider status, and disclosure
Two further overlays apply with particular force to founders and cornerstone investors in recently-listed issuers. The first is lock-up. Post-IPO, controlling shareholders and certain investors are subject to lock-up restrictions under the HKEX Listing Rules and their own undertakings, and shares that cannot yet be freely dealt with are difficult to treat as realisable collateral. A pledge must be compatible with those undertakings, and where it is not yet, the tenor and structure are calibrated around the lock-up expiry. Whether any given pledge is consistent with a holder's specific lock-up is a matter for the holder's own Hong Kong counsel, engaged in parallel.
The second is disclosure. A founder pledging a large stake in a young issuer is frequently a director or substantial shareholder, which engages the SFO Part XV Disclosure of Interests regime — and the director/chief-executive limb of that regime, which has no 5% floor at all. As our note on SFO Part XV disclosure explains, whether a pledge or the taking of security is itself a notifiable event depends on the structure and the holder's status, and is decided at the outset with counsel — never left to chance. For a concentrated founder position in a Chapter 18A or 18C name, the disclosure analysis and the liquidity analysis are done together, because both feed the terms.
Why the market exists for these names at all
If pre-profit positions are harder to finance, why finance them? Because the need is real and the alternatives are worse. A biotech or deep-tech founder often holds the overwhelming majority of their net worth in a single, illiquid, lock-up-constrained listed stake, and may need capital for reasons that have nothing to do with a lack of conviction in the company — diversification, tax and succession planning, a parallel venture, or simply the ordinary liquidity that a concentrated holder lacks. Selling into the market signals doubt, crystallises the position, and can move a thinly-traded price against the seller. A carefully-structured, conservatively-sized stock loan lets the holder raise liquidity while retaining the upside they most believe in — which is precisely the institutional case for share-backed financing, applied to the hardest end of the collateral spectrum.
A pre-profit listing is not un-financeable — it is differently financeable. The milestone risk, the thinner liquidity, and the lock-up and disclosure overlays do not close the door; they set the terms behind it. And those terms live in the specific name, reviewed one ticker, and one event calendar, at a time.
This article is educational and does not constitute legal, regulatory, tax, or investment advice, nor an offer or solicitation. All loan-to-value, tenor, and eligibility references are indicative and illustrative only; no fixed rate or LTV grid is published, and any indicative terms are issued only after review of a specific position. Whether and how the HKEX Listing Rules (including Chapters 18A and 18C and any lock-up undertakings), the SFO Part XV Disclosure of Interests regime, or the SFC Codes on Takeovers and Mergers apply to any transaction is a question for your own Hong Kong legal counsel, engaged in parallel with structuring. Hong Kong Stock Loans acts as an arranger and introducer in collaboration with SFC-licensed counterparties.
Edward Chan Wai-Lun, Founder & Managing Principal