September 30, 2022

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Five Chinese state-owned companies, under scrutiny in the US, will be delisted from the New York Stock Exchange

Five Chinese state-owned companies, under scrutiny in the US, will be delisted from the New York Stock Exchange

SHANGHAI/HONG KONG/NEW YORK (Reuters) – Five U.S.-listed Chinese state-owned companies that are under scrutiny by the U.S. Securities Regulatory Authority said on Friday they would voluntarily divest from the New York Stock Exchange.

The giant oil company Sinopec (600028.SS) China Life Insurance (601628.SS)China Aluminum Corporation (Shalco) (601600.SS)PetroChina (601857.SS) and a separate Sinopec entity, Sinopec Shanghai Petrochemical Co (600688.SS)Both have said they will apply to write off their American Depository Shares this month. They will maintain their listings in Hong Kong and mainland China.

In May, the US Securities and Exchange Commission (SEC) announced that the five companies and many others failed to meet US auditing standards, and the companies did not mention the dispute in their announcements, which comes with rising tensions after US House Speaker Nancy. Pelosi visited Taiwan.

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Beijing and Washington are in talks to resolve a long-running audit dispute that could lead to Chinese companies being banned from US exchanges if China does not comply with Washington’s demand for full access to the books of Chinese companies listed in the US.

Beijing is blocking foreign inspections of audit documents from domestic accounting firms, citing national security concerns.

“These companies have strictly adhered to the regulatory rules and requirements of the US capital market since their US listing and made the delisting option for their own business considerations,” the China Securities Regulatory Commission (CSRC) said in a statement.

It added that it would keep “communication open with relevant external regulators”.

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The regulatory row, which has been simmering for more than a decade, came to a head in December when the Securities and Exchange Commission (SEC) ended rules likely to ban trading in Chinese companies under the Foreign Company Accountability Act. It said 273 companies were at risk.

Some of China’s largest companies including Alibaba Group Holdings and JD.com Inc (9618.HK)Baidu Inc. is among them. New York-listed Alibaba said last week it would convert its secondary Hong Kong listing to a primary dual listing that analysts said could ease the way for the Chinese e-commerce giant to switch major listing sites in the future. Read more

US-listed China Life Insurance and oil giant Sinopec fell 3.06% and 3.22%, respectively, on Friday. China Aluminum Co fell 3.03%, while PetroChina fell 2.80%. Sinopec Shanghai Petrochemical was down 3.29%.

NYSE spokesmen and the Company’s Public Accounting Oversight Board (PCAOB), the SEC’s audit regulator, declined to comment.

Losing patience?

It was not clear if there were any effects of the write-off on the audit deal negotiations. Last month, Reuters reported that removing sensitive companies from the list would not make China comply with US rules because the PCAOB must be able to conduct retrospective inspections. A source familiar with the matter said on Friday that the agency’s position had not changed. Read more

Some market watchers said the write-offs were a bad sign.

“China is sending a message that its patience is running out,” said Kai Zhan, a senior advisor at the Chinese law firm Yuanda, which specializes in US capital markets.

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The companies said the volume of their shares traded in the United States was small compared to those in other major listing places. However, the volume of US-listed shares of the five companies on Friday was well above its 10-day average.

PetroChina said it had not raised its capital to pursue its US listing and that its bases in Hong Kong and Shanghai “can meet the company’s fundraising requirements”.

Global fund managers who own US-listed Chinese stocks are steadily turning toward their peers trading in Hong Kong, although they still hope the audit dispute will eventually be resolved. Read more

“These companies trade very scantly with a very small US market capitalization, so it’s not a loss for US capital markets,” Brendan Ahern, CIO of KraneShares, which has a New York-listed fund focused on Chinese technology, wrote in an email. .

He and some analysts said they believe the writedowns still help pave the way for an audit deal.

“We see this as a positive sign. This is consistent with our view, that China will decide which companies will be allowed to be listed in the United States, and therefore subject to SEC scrutiny,” Jefferies analysts wrote.

China Life and Chalco said they will file a delisting request on August 22, and it will take effect 10 days later. Sinopec, whose full name is China Petroleum and Chemical Corporation, and PetroChina said their applications would be submitted on August 29.

Chinese Telecom (0728.HK)China Mobile (0941.HK) And China Unicom (0762.HK) It was delisted from the United States in 2021 after a Trump-era decision to restrict investment in Chinese technology companies. The Biden administration left that provision unchanged amid ongoing tensions.

Additional reporting by Samuel Shen in Shanghai, Scott Murdoch in Hong Kong and Medha Singh in Bengaluru Additional reporting by Michelle Price, Echo Wang and Chuck Mikolajchak Editing by David Goodman, Alexander Smith, Matthew Lewis and David Gregorio

Our criteria: Thomson Reuters Trust Principles.