SHANGHAI/HONG KONG, Aug 12 (Reuters) – Five Chinese state-owned companies, including oil giant Sinopec (600028.SS) and China Life Insurance (601628.SS)said on Friday that it would delist from the New York Stock Exchange amid economic and diplomatic tensions with the United States.
Companies, including Aluminum Corporation of China (Chalco) (601600.SS)Petro China (601857.SS) and a separate Sinopec entity, Sinopec Shanghai Petrochemical Co (600688.SS)Each said they would apply to list their American Depository shares this month.
The five, which were flagged by the US securities regulator in May as failing to meet its audit standards, will be listed on markets in Hong Kong and mainland China.
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Beijing and Washington are in talks to resolve a long-running audit dispute that could result in Chinese companies being banned from US exchanges if they don’t comply with US rules.
Washington has long demanded full access to the books of US-listed Chinese companies, but Beijing prohibits foreign inspection of audit documents from local accounting firms, citing national security concerns.
Separate statements by Chinese companies outlining their moves made no mention of the auditing dispute, which comes amid heightened tensions after US House of Representatives Speaker Nancy Pelosi’s visit to Taiwan last week.
“These companies have strictly complied with US capital market rules and regulatory requirements since listing in the US and chose delisting for their own business considerations,” the China Securities Regulatory Commission (CSRC) said in a statement.
The agency added that it would “keep communication open with relevant foreign regulatory agencies.”
The regulatory row, which has been heating up for more than a decade, reached 273 companies in December when the Securities and Exchange Commission (SEC) finalized rules potentially banning transactions in Chinese companies under the Holding Foreign Companies Accountability Act. was at risk.
Some of China’s biggest companies include Alibaba Group Holdings, JD.com Inc (9618.HK), and Baidu Inc are among them Alibaba said last week it would convert Hong Kong’s secondary listing into a dual primary listing, which analysts said could ease the way for the Chinese e-commerce giant to switch primary listings in the future. Read more
In Friday trading, US-listed shares of China Life Insurance and oil giant Sinopec fell 3.06% and 3.26%, respectively. Aluminum Corp of China fell 3.14%, while PetroChina lost 2.85%. Sinopec Shanghai Petrochemical Company declined 3.54%.
A spokesman for the NYSE declined to comment. A spokesman for the Public Company Accounting Oversight Board, the audit watchdog overseen by the SEC, did not immediately provide comment.
Losing patience?
Market-watchers were divided on what the delisting might mean for the audit contract, with some saying it was a bad sign.
“China is sending a message that its patience with audit negotiations is wearing thin,” said Cai Zhan, senior counsel at Chinese law firm Yuanda, who specializes in US capital markets.
The companies said their U.S. traded shares are smaller than their other major listing venues.
Still, the volume of US-listed shares for five companies on Friday was at least three times their 10-day average.
PetroChina said it had not raised follow-on capital from its US listing and that its Hong Kong and Shanghai bases “could meet the company’s fundraising requirements.”
Global fund managers holding U.S.-listed Chinese stocks are steadily moving toward their Hong Kong-traded peers, even as they remain hopeful that the audit dispute will eventually be resolved, Reuters reported this week. Read more
“These companies trade very little with very low US market caps so this is not a loss for the US stock market,” Brendan Ahern, CIO of Crane Funds Advisors, which has a New York-listed fund focused on Chinese technology plays, wrote in an email.
He and analysts said the listings could pave the way for China to comply with U.S. requirements, since the five companies involved likely have sensitive information China does not want disclosed in audit reviews.
“We see this as a positive sign. This is consistent with our view. China will decide which companies are allowed to be US-listed and thus subject to the SEC’s audit investigation,” Jefferies analysts wrote in a note.
China Life and Chalco said they will file for delisting on August 22, effective 10 days later. Sinopec, whose full name is China Petroleum and Chemical Corp., and PetroChina said their applications would be made on Aug. 29.
Chinese Telecom (0728.HK)China Mobile (0941.HK) and China Unicom (0762.HK) Delisted from the US in 2021 following a Trump-era decision to restrict investment in Chinese tech firms. The Biden administration has left that ruling unchanged amid continued tensions.
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Reporting by Samuel Shen in Shanghai, Scott Murdoch in Hong Kong and Medha Singh in Bengaluru Additional reporting by Michelle Price Editing by Echo Wang and Chuck Mikolaczak Editing by David Goodman, Alexander Smith and Matthew Lewis
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