Jan 3, 2021

China’s Three Big Telcos Slide on NYSE’s Move to Delist Shares

Shirley Zhao, Bloomberg News

U.S. flags fly half-mast in front of the New York Stock Exchange (NYSE) in New York, U.S., on Friday, Oct. 2, 2020. New York faced pressure as middle and high schools reopened, infection rates in virus hot spots rose further and the city's bond rating was cut by Moody's. Photographer: Michael Nagle/Bloomberg , Bloomberg

(Bloomberg) -- China’s state-owned telecommunications companies declined in Hong Kong after the New York Stock Exchange said it is delisting them to comply with a U.S. executive order that sanctioned companies identified as affiliated with the Chinese military.

Shares of China Mobile Ltd., the largest of the three, fell as much as 4.5% in early trading on Monday, while China Telecom Corp. dropped 5.6%, marking their biggest losses since mid-November. China Unicom Hong Kong Ltd. slipped 3.6%. The American depositary receipts of the three firms will be suspended from trading between Jan. 7 and Jan. 11, and the process of delisting them has started, NYSE said.

The nation’s oil majors including CNOOC Ltd. also fell on concerns they will be targeted next for delisting in the U.S.

NYSE’s move followed an order by U.S. President Donald Trump in November barring American investments in Chinese firms owned or controlled by the military, in a bid to pressure Beijing over what it views as abusive business practices. China’s securities regulator said given the small amount of U.S.-traded shares at each of the three phone companies, the impact on them would be limited and they are well positioned to handle any fallout.

The delisting is more of a symbolic blow amid heightened geopolitical friction between the world’s two largest economies, as they are thinly traded on the NYSE. The companies also get almost all of their revenue from China.

‘Sound Fundamentals’

The decision “may impose short term selling pressure on the stocks,” Citigroup Inc. said in a research report. “However, Chinese telcos’ operations are mainly domestic focused and their sound fundamentals along with recovery trends and positive cash flows will not be affected by the delisting, in our view.”

The ADRs total less than 20 billion yuan ($3.1 billion) and account for at most 2.2% of the total shares each, the China Securities Regulator Commission said in a statement Sunday. China Telecom has 800 million yuan of ADRs and China Unicom has about 1.2 billion yuan.

“The recent move by some political forces in the U.S. to continuously and groundlessly suppress foreign companies listed on the U.S. markets, even at the cost of undermining its own position in the global capital markets, has demonstrated that U.S. rules and institutions can become arbitrary, reckless and unpredictable,” the CSRC said.

In separate statements Monday, each telecommunications operator said it “regrets” the NYSE’s actions, and said the decision might affect the prices and trading volume of the companies’ shares. All three companies said they hadn’t received any notification from the NYSE about the delisting.

‘Lawful Rights’

China Unicom and China Mobile said they’re reviewing ways to protect the companies’ “lawful rights.” China Telecom said it’s considering “corresponding options” to “safeguard the legitimate interests of the company.”

CNOOC fell as much as 5.7% in Hong Kong on Monday, while PetroChina Co. dropped 2.5%.

China’s largest offshore oil producer CNOOC could be most at risk as it’s on the Pentagon’s list of companies it says are owned or controlled by Chinese military, according to Bloomberg Intelligence analyst Henik Fung. PetroChina and China Petroleum and Chemical Corp., also known as Sinopec, may also be under threat as the energy sector is crucial to China’s military, he said.

A Sinopec spokesperson declined to comment. Cnooc and PetroChina didn’t immediately respond to emailed requests for comment.