Chapter 18A & 18C Stock Loans: Financing Pre-Profit HKEX Listings

Part of the Hong Kong Stock Loan Regulatory & Eligibility Guide — view the full guide →

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 to list on the Main Board despite failing the conventional financial-eligibility tests. Their 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, new-generation information technology, and advanced manufacturing. It distinguishes between "Commercial" and "Pre-Commercial" companies, with the pre-commercial cohort subject to a higher market-capitalisation bar and additional safeguards precisely because they, too, are valued on promise rather than proven cash flow. For 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 binary, event-driven volatility. A diversified industrial 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. The distribution of outcomes 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. The rational response is not to refuse the position but to price the risk: a wider haircut, a lower indicative loan-to-value band, close attention to the tenor relative to the issuer’s event calendar. 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 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. Free float and average daily traded value apply here too, and often cut against a pre-profit name: many recently-listed issuers have a large founder or cornerstone block, a modest genuine free float, and thinner turnover than their market capitalisation implies. Our companion note on which HKEX stocks can be pledged sets out that screen in full; for pre-profit issuers it is simply applied with more caution. The event calendar becomes a structuring input: a lender wants to know where a facility’s tenor sits relative to a known readout or approval date.

Lock-ups, insider status, and disclosure

Two overlays apply with particular force to founders 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. The second is disclosure: a founder pledging a large stake is frequently a director or substantial shareholder, engaging the SFO Part XV Disclosure of Interests regime — including its director/chief-executive limb, which has no 5% floor. As our note on SFO Part XV disclosure explains, whether a pledge is notifiable is decided at the outset with the holder’s own Hong Kong counsel.

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 stake, and may need capital for reasons unrelated to conviction in the company. Selling into the market signals doubt and can move a thin price against the seller. A carefully-structured, conservatively-sized stock loan lets the holder raise liquidity while retaining the upside they most believe in.

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.

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

Educational; not advice. Editorial standards · Disclosures