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To Delist or Not to Delist? NYSE Backtracks on Delisting of Chinese Telecom Companies

by | Jan 5, 2021 | Capital Markets & Securities Regulation, Emerging Growth & Technology Practice, Greater China Practice, Ian Liao

As the world welcomes 2021, the New York Stock Exchange (NYSE) announced its plan to delist three state-owned Chinese telecommunication companies from the exchange to comply with the Trump administration’s executive order barring U.S. investments in Chinese firms determined to be owned or controlled by the military. The United States Department of Defense had previously listed the three companies – China Telecom, China Unicom, and China Mobile, as having significant connection to Chinese military and security forces. NYSE had stated that it will suspend trading in the American depository shares (ADS) of these companies between Jan. 7 and Jan. 11, and has started proceedings to delist them.

On the first trading day following the announcement, the companies saw their American depositary receipt prices sank. On Jan. 4, China Telecom dropped 5.5%, China Mobile dropped 5.9%, and China Unicom dropped 3.2%. Then, unexpectedly late that same day, the NYSE reversed itself and announced that it won’t be delisting the three telecom companies.

The NYSE did not elaborate on its reasoning for the reversal but says that “in light of further consultation with relevant regulatory authorities,” that it no longer intends to move forward with the delisting. Some investors have already sold their holdings in the companies subject to the delisting decisions and now scrambling to reposition themselves in light of the halted delisting.

As the three Chinese companies have separate listings in Hong Kong and their shares are thinly traded on the NYSE compared with their primary listing in Hong Kong so the impact of the decisions on these companies will likely be minimal. However, the NYSE’s decision (and later reversal) will create further uncertainty as to how market regulators are dealing with Chinese companies and the underlying U.S.-China relationship as the U.S. transitions from the Trump administration to the Biden administration.

With this uncertainty, Chinese companies may consider the U.S. as being a less attractive option for raising funds from the public market, particularly if the company is a state-owned enterprise with links to the military or security forces. This may be the beginning of a shift after more than two decades of Chinese companies turning to the U.S. stock market for capital and international credibility.