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 they would be delisted from the New York Stock Exchange amid economic and diplomatic tensions with the United States.
Companies including Aluminum Corporation of China (Chalco). (601600.SS)PetroChina (601857.SS) and Sinopec Shanghai Petrochemical Co (600688.SS)each said they would apply to delist American Depositary Shares this month.
Five companies flagged by the US securities regulator in May as failing to meet audit standards will maintain their listings on 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 see Chinese companies banned from U.S. exchanges if they fail to comply with U.S. regulations.
Washington has long demanded full access to the books of US-listed Chinese companies, but Beijing has banned foreign audits of audits by local accounting firms, citing national security concerns.
The audit dispute was not addressed in separate statements by US House Speaker Nancy Pelosi, which reflected on the actions of Chinese companies amid heightened tensions following a visit to Taiwan last week.
“These companies have strictly followed the rules and regulatory requirements of the US capital market after listing in the US and made the delisting choice 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 overseas regulatory authorities”.
The more than a decade-long regulatory dispute came to a head in December after the Securities and Exchange Commission (SEC) finalized rules under the Foreign Holding Companies Act that could potentially ban trading in Chinese companies. He said that 273 companies are at risk.
Some of China’s biggest companies, such as Alibaba Group Holdings, JD Com Inc and Baidu Inc, are among them. Alibaba said last week it would convert its secondary listing in Hong Kong to a dual primary listing, which analysts say could ease the way for the Chinese e-commerce giant to switch primary listing locations in the future. read more
US shares of China Life Insurance and oil giant Sinopec fell 5.7% and about 4.3%, respectively, in premarket trading on Friday. Aluminum Corporation of China fell 1.7%, and PetroChina fell 4.3%. Sinopec Shanghai Petrochemical Co lost 4.1%.
A NYSE spokeswoman declined to comment. A spokesman for the Public Company Accounting Oversight Board, the audit watchdog overseen by the SEC, did not immediately have a comment.
LOSING PATIENCE?
Market watchers were divided on what the delisting could mean for the audit contract, with some saying it was a bad sign.
“China is sending a message that it is running out of patience with audit negotiations,” said Kai Zhan, senior counsel at Yuanda, a Chinese law firm specializing in US capital markets.
The companies said the volume of shares they traded in the US was small compared to those in other major listings.
PetroChina said it has never raised additional capital from its US listing and that its Hong Kong and Shanghai bases “can meet the company’s fundraising requirements” and provide “better protection of investors’ interests”.
Global fund managers holding U.S.-listed Chinese stocks are steadily moving ahead of their Hong Kong-traded peers even as they hope the audit dispute will eventually be resolved, Reuters reported this week. read more
“These companies are very thinly traded with very small US market caps, so it’s not a detriment to US equity markets,” wrote Brendan Ahern, CIO of Krane Funds Advisors, a New York-based fund focused on Chinese tech plays. e-mail
He and analysts said the delisting could pave the way for China to comply with U.S. demands because the five companies likely hold sensitive information that China does not want exposed in an audit.
“We see this as a positive sign. It is consistent with our view that China will decide which companies are allowed to list in the US and thus be subject to SEC audit investigations,” Jefferies analysts wrote in a note.
China Life and Chalco said they would apply for delisting in August. 22, takes effect 10 days later. Sinopec and PetroChina, whose full name is China Petroleum & Chemical Corporation, said their applications would be made in August. 29.
China Telecom (0728.HK)China Mobile (0941.HK) and China Unicom (0762.HK) It was pulled out of the United States in 2021 following Trump’s decision to limit investment in Chinese tech firms. The decision was left unchanged by the Biden administration amid ongoing 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 and Echo Wang; Edited by Hugh Lawson, David Goodman, and Alexander Smith
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