What does the future hold for Chinese companies listed in the US?
Five state-owned Chinese companies, including the country’s leading energy and chemical company, have chosen to delist from the New York Stock Exchange by the end of August.
In separate statements issued Friday, China Life Insurance, PetroChina, Sinopec, Aluminum Corporation of China and Sinopec Shanghai Petrochemical said they had notified the NYSE and applied for “voluntary delisting.”
All five companies cited “low turnover in the US” and “high administrative burden and costs” as their reason for the departure.
However, the news comes after all five were flagged by the US Securities and Exchange Commission in May, according to Reuters, for failing to meet US auditing standards.
China’s securities watchdog, the China Securities Regulatory Commission, said on Friday that it is aware of the situation and that “it is normal for companies to list or delist from any market.”
“We will keep in touch with foreign regulatory institutions and protect the rights of corporations and investors together,” it said.
The news comes as the Securities and Exchange Commission increases its scrutiny of Chinese companies’ audits.
The commission can kick companies off the stock exchange if they fail to allow US watchdogs to inspect their financial audits for three straight years. China has for years rejected US audits of its firms.
Chinese companies that are traded overseas are required to hold their audit papers in mainland China, where they cannot be examined by foreign agencies.
But in April, China’s securities watchdog proposed changing a decade-old rule that forbids Chinese firms from sharing sensitive data and financial information with overseas regulators. The amendment could allow US regulators to inspect audit reports of Chinese companies listed in New York.
Nevertheless, companies like Alibaba are taking steps to prepare for a potential loss of direct access to the US capital market.
In late July, the Securities and Exchange Commission added Alibaba to a list of more than 150 companies that could face expulsion if their audits could not be inspected in the next three years, joining some of China’s largest companies like JD.com and Baidu.
Even before the commission added Alibaba to its watch list, the company announced it would seek a primary listing on the Hong Kong stock exchange.
Currently, Alibaba has a secondary listing on the Hong Kong stock exchange.
“A primary listing status in Hong Kong gives Chinese ADRs (American Depository Shares) an optionality to diversify their listing risk and retain access to the public equity market” if they are forced to leave the United States, said Goldman Sachs analysts in a recent report.
If the transition goes smoothly for Alibaba it could “set the path” for many more Chinese ADRs to pursue a similar switch, Citi analysts said.
Leave a Reply