November 29, 2023

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Five Chinese state-owned companies have to be delisted from the New York Stock Exchange amid US tensions

Five Chinese state-owned companies have to be delisted from the New York Stock Exchange amid US tensions

SHANGHAI/HONG KONG (Reuters) – Five Chinese state-owned companies, including oil giant Sinopec, are state-owned. (600028.SS) China Life Insurance (601628.SS)On Friday, they said they would remove their names from the New York Stock Exchange, amid economic and diplomatic tensions with the United States.

Companies that also include 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.

The five companies, which were classified in May by the US Securities Regulatory Authority as failing to meet its auditing standards, will retain their listings in the Hong Kong and mainland Chinese markets.

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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 they do not comply with US rules.

Washington has long demanded full access to the books of Chinese companies listed in the United States, but Beijing is blocking foreign inspections of audit documents from domestic accounting firms, citing national security concerns.

There was no mention of the scrutiny dispute in separate statements by Chinese companies outlining their movements, which come amid heightened tensions after US House Speaker Nancy Pelosi’s visit last week to Taiwan.

“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.

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

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 Inc (9618.HK)Baidu Inc. is among them. Alibaba said last week it would convert its secondary listing in Hong Kong to a primary dual listing that analysts said could ease the way for the Chinese e-commerce giant to switch major listing venues in the future. Read more

In Friday’s trading, shares of China Life Insurance and oil giant Sinopec fell 3.06% and 3.26%, respectively. China Aluminum Co fell 3.14%, while PetroChina fell 2.85%. Sinopec Shanghai Petrochemical was down 3.54%.

A spokesman for the New York Stock Exchange declined to comment. A spokesperson for the Public Company Accounting Oversight Board, which is the audit monitor overseen by the Securities and Exchange Commission, would not immediately comment.

Losing patience?

Market watchers were divided over what the audit deal deletions might mean, with some saying it was a bad sign.

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

The companies said the volume of their shares traded in the United States was small compared to those in other major listing places.

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However, the volume of US-listed shares of the five companies on Friday was at least three times 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”.

Reuters reported this week that global fund managers who own US-listed Chinese stocks are steadily turning toward their peers trading in Hong Kong, though they still hope the audit dispute will eventually be resolved. Read more

“These companies are trading very scantly with a very small US market capitalization, so it’s not a loss for US capital markets,” Brendan Ahern, CIO of Krane Funds Advisors, which has a New York-listed fund focused on Chinese tech plays, wrote in . e-mail.

He and analysts said the write-downs could pave the way for China to comply with US requirements, as the five companies involved likely have sensitive information that China does not want to disclose in the audit review.

“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 in a note.

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 Michael Price, Eko Wang and Chuck Mikolajchak Editing by David Goodman, Alexander Smith and Matthew Lewis

Our criteria: Thomson Reuters Trust Principles.