China Life Insurance, PetroChina and Sinopec to delist from NYSE amid audit dispute
– It is normal for companies to list or delist from any market, CSRC spokesman says
– The companies cited low trading volumes, high costs and regulatory issues for their decision to voluntarily delist from the New York Stock Exchange
Five Chinese state-owned companies are seeking to delist from the US amid an unresolved auditing dispute that could see dozens of mainland Chinese firms ejected from American exchanges, as ties between the two nations continue to worsen.
China Life Insurance, PetroChina and China Petroleum and Chemical Corporation (Sinopec) said they would apply for the “voluntary delisting” of their American depositary shares (ADS) from the New York Stock Exchange, according to their filings on Friday to the Hong Kong stock exchange where their shares are also listed.
The smaller Aluminium Corporation of China (Chalco) and Sinopec Shanghai Petrochemical Co also said they would apply to delist their ADS this month.
A spokesman for the China Securities Regulatory Commission (CSRC), the market watchdog, said that “it was normal for companies to list or delist from any market”.
“These companies have fully complied with the US regulation. However, their delistings are related to the low turnover in the US. And since they are listed in other markets, the delisting will not affect their fundraising ability in other offshore markets,” the CSRC spokesman said.
The CSRC respects the decision of individual companies to list overseas and will continue to work with overseas regulators to safeguard the interests of the shareholders, he added.
The three biggest companies have a combined market cap of HK$256.92 billion (US$32.73 billion) in Hong Kong. They are also constituents of the benchmark Hang Seng Index and have a combined weighting of 2.18 per cent.
Their departure from the NYSE comes amid escalating tension between the US and China. China’s Ministry of Foreign Affairs last week issued a list of eight sanctions in response to US House of Representatives Speaker Nancy Pelosi’s visit to Taiwan, which included a suspension of dialogue on climate-change issues, repatriation of illegal immigrants, criminal justice assistance and cross-border crimes.
The Securities and Exchanges Commission (SEC), the US market regulator, had been progressively adding companies to a list of entities deemed to be liable for the Holding Foreign Companies Accountable Act (HFCAA), which provides for the expulsion of companies as early as next year if they do not comply with US auditing oversight after three consecutive years.
US and Chinese regulators have for a decade been grappling with ways to resolve the impasse, as the clock ticks down towards the expulsion, which could kick in as early as 2023. The US Public Companies Accounting Oversight Board (PCAOB) cited mainland China and Hong Kong as two jurisdictions deemed “inaccessible”. China’s securities regulator said it has proposed several plans to the PCAOB to resolve the spat.
The three companies did not refer to the auditing dispute for their decision to delist from the NYSE, but instead cited the low trading volumes, high costs and regulatory issues for the move.
China Life, the second-largest life insurer after Ping An Insurance Group in terms of market cap, will apply to delist on August 22, and expects its ADS to cease trading on or after September 1, according to a statement.
The company said it arrived at the decision after taking into account “the limited trading volume of its ADS relative to the worldwide trading volume of its H shares, and the considerable administrative costs”.
PetroChina added that the decision was aimed at better protecting the interests of investors.
China’s largest oil company said that it had never utilised NYSE for any follow-on financing, adding that the stock markets in Hong Kong and Shanghai “are strong alternatives for the company because they can satisfy the company’s fundraising requirements necessary for its normal business operations”.
The New York-listed ADS made up 3.9 per cent of PetroChina’s Hong Kong-traded H shares, or only 0.45 per cent of its total issued shares, the Beijing-based company said. The last trading day of the ADS is expected to be on or around September 8, PetroChina said.
Sinopec, China’s largest oil retailer, plans to file its delisting application on August 29, which will take effect 10 days later, the Beijing company said.
The company said its decision to delist was due to sparse trading of its ADS and high administrative and regulatory burden.
After the delisting, Petro China said its ADS holders can opt to trade on the over-the-counter market or swap with its Hong Kong-listed shares.
China Life and Sinopec did not immediately disclose their arrangements for existing ADS shareholders.
About 300 businesses based in China and Hong Kong – with over US$2.4 trillion in market value – risked being kicked off US exchanges as the SEC increases scrutiny, Bloomberg Intelligence estimated in May.
“More US-listed Chinese companies are likely to delist from the US as most of them are thinly traded and are under increasing US regulatory pressure,” said Tom Chan Pak-lam, chairman of the Institute of Securities Dealers.
“However, if the US expands the ban on US investors from investing in Chinese companies listed in Hong Kong, it will have a significant impact on the local market. Hopefully, it shouldn’t come to that and the two countries will reach a compromise and settle their differences.”