Five Chinese state-owned companies, under scrutiny in U.S., will delist from NYSE

SHANGHAI/HONG KONG/NEW YORK, Aug. 12 (Reuters) – Five US-listed Chinese state-owned companies whose audits are under investigation by the US securities regulator said Friday they would voluntarily delist from the New York Stock Exchange.

Oil giant Sinopec (600028.SS) and China Life Insurance (601628.SS), Aluminum Corporation of China (Chalco) (601600.SS), PetroChina (601857.SS) and a separate Sinopec entity, Sinopec Shanghai Petrochemical Co (600688. SS), each said they would apply this month to cancel their American Depository Shares. They maintain their listings in Hong Kong and mainland China.

In May, the US Securities and Exchange Commission (SEC) noted that the five companies and many others did not meet US auditing standards. Pelosi visited Taiwan.

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 China fails to meet Washington’s requirement for full access to the books of US-listed Chinese companies .

Beijing bans foreign inspection of audit documents from local audit firms, citing national security concerns.

“These companies have strictly adhered to the rules and regulatory requirements of the US capital market since their US listing and made the choice for their own business considerations,” the China Securities Regulatory Commission (CSRC) said in a statement.

It added that it would keep “communications with relevant foreign regulatory authorities” open.

The oversight feud, which has been simmering for more than a decade, came to a head in December when the SEC finalized rules to potentially ban trading in Chinese companies under the Holding Foreign Companies Accountable Act. It said 273 companies were at risk.

Some of China’s largest companies including Alibaba Group Holdings, JD.com Inc (9618.HK) and Baidu Inc are among them. New York-listed Alibaba said last week it would convert its secondary listing in Hong Kong to a dual primary listing, which analysts say could pave the way for the Chinese e-commerce giant to switch primary listings in the future. read more

US-listed shares of China Life Insurance and oil giant Sinopec fell 3.06% and 3.22% respectively on Friday. Aluminum Corporation of China fell 3.03%, while PetroChina lost 2.80%. Sinopec Shanghai Petrochemical Co. lost 3.29%.

Spokespersons for NYSE and the Public Company Accounting Oversight Board (PCAOB), the auditing watchdog overseen by the SEC, declined to comment.

LOSE PATIENCE?

It was unclear what the potential impact of the cuts would be on the audit deal negotiations. Last month, Reuters reported that scrapping sensitive companies will not bring China into compliance with US rules, as the PCAOB must be able to conduct retroactive inspections. The agency’s position has not changed, a person with knowledge of the matter said Friday. read more

Some market watchers said the cuts were a bad sign.

“China is sending out a signal that its patience is running out,” said Kai Zhan, senior counsel at the Chinese law firm Yuanda, which specializes in US capital markets.

The companies said their US-traded share volume was small compared to that in their other major publicly traded locations. Still, the volume of US-listed shares of the five companies was well above their 10-day average on Friday.

PetroChina said it had never raised follow-up capital from its US listing and that its bases in Hong Kong and Shanghai “can meet the company’s fundraising requirements.”

Global fund managers holding US-listed Chinese stocks are steadily shifting to their Hong Kong-traded counterparts, even as they remain hopeful that the audit dispute will eventually be resolved. read more

“These companies are traded very thinly with very small US market caps, so it’s not a loss to US capital markets,” Brendan Ahern, CIO of KraneShares, which has a New York-listed fund focused on Chinese technology, wrote in an e-mail. mail.

He and some analysts said they believed the deletions could still help pave the way for an audit deal.

“We see this as a positive sign. This is consistent with our view that China will decide which companies may be listed in the US and thus subject to SEC audits,” Jefferies analysts wrote.

China Life and Chalco said they would file a delisting request on Aug. 22, which would take effect 10 days later. Sinopec, whose full name is China Petroleum & Chemical Corporation, and PetroChina said their applications would be filed on August 29.

China Telecom (0728.HK), China Mobile (0941.HK) and China Unicom (0762.HK) were banned from the United States in 2021 following a Trump-era decision to curtail investment in Chinese tech companies. That ruling has been left unchanged by the Biden administration amid ongoing tensions.

Reporting by Samuel Shen in Shanghai, Scott Murdoch in Hong Kong and Medha Singh in Bengaluru Additional reporting by Michelle Price, Echo Wang and Chuck Mikolajczak Editing by David Goodman, Alexander Smith, Matthew Lewis and David Gregorio

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