China’s Three Big Telco’s Slide on NYSE’s Move to Delist ADRs

Photographer: Michael Nagle / Bloomberg

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Chinese state telecommunications companies fell in Hong Kong after the The New York Stock Exchange said it is scrapping them to comply with a US executive order sanctioning companies identified as affiliated with the Chinese military.

Shares of China Mobile Ltd., the largest of the three, fell a whopping 4.5% on Monday to its lowest level since 2006 China Telecom Corp. decreased by 5.6%. The two posted their biggest intraday losses since mid-November. China Unicom Hong Kong Ltd. lost 3.6%. The three companies’ US certificates will be suspended between Jan. 7 and Jan. 11, and the delisting process has begun, NYSE said.

The country’s oil companies, including CNOOC Ltd. also fell to concern that they will be the next target for deletion in the US.

“It’s largely a blow to sentiment,” which could be temporary, said Mark Huang, an analyst at Bright Smart Securities in Hong Kong. “While the side effects are not unusually significant, there is some impact on fundraising. Some passive index tracking funds may sell to avoid risk. More importantly, this is one more reason to ditch telecom and strive for better performing sectors. “

The NYSE’s decision followed an order from US President Donald Trump in November, excluding US investments in Chinese companies owned or controlled by the military, in an attempt to pressure Beijing over what it considers as abusive business practices. China’s securities regulator said that given the small number of US-traded stocks at each of the three telephone companies, the impact on them would be limited and they are well positioned to absorb any impact.

Symbolic blow

The delisting is more of a symbolic blow amid heightened geopolitical friction between the two largest economies in the world, as they barely trade on the NYSE. The companies also derive almost all of their income from China.

The decision “may put selling pressure on the stock in the short term,” said Citigroup Inc. in a research report. “However, the business of Chinese telecom companies is primarily domestically oriented and their healthy 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 each represents up to 2.2% of the total shares. China Securities Regulatory Commission said in one statement Sunday. China Telecom has 800 million yuan of ADRs and China Unicom has about 1.2 billion yuan.

“The recent move by some US political forces to continually and unwarrantedly suppress foreign companies listed in US markets, even at the expense of undermining their own position in global capital markets, has shown that US rules and institutions are arbitrary. can be reckless and unpredictable, ”the CSRC said. “It is certainly not a wise move.”

FTSE Russell

Index provider FTSE Russell will say Monday whether it plans to pull more Chinese stocks out of its benchmarks, after the US added to its list of sanctioned securities in recent weeks. FTSE Russell had already listed eight company removals in early December, a decision later followed by colleagues MSCI Inc. and S&P Dow Jones. FTSE Russell’s changes will take effect from the start of trading on Thursday.

On Monday, each telecom operator said in separate statements that it “regrets” the actions of the NYSE, and said the decision could affect prices and trading volume of the companies’ shares. All three companies said they had not received any notification from the NYSE of the delisting.

China Unicom and China Mobile said they are exploring ways to protect the companies’ “legal rights”. China Telecom said it is considering “corresponding options” to “protect the company’s legitimate interests.”