By Chong Koh Ping and Drew FitzGerald
The New York Stock Exchange will delist China's three large
telecom carriers, following a U.S. government order barring
Americans from investing in companies it says help the Chinese
military.
China Mobile Ltd. -- which is among the most valuable of China's
listed state-owned enterprises -- will be kicked off the Big Board
after more than two decades, along with China Telecom Corp. and
China Unicom Hong Kong Ltd.
The NYSE decision is the latest setback for U.S. investors in
these companies, which rank among the largest global
telecommunications providers but have largely lagged behind the
broader markets since the companies began listing here more than
two decades ago.
The exchange's decision is unlikely to seriously harm the
Chinese telecom giants in the near term. Mounting pressure from
Washington has already stymied their ability to operate in the
U.S., a country that makes up a negligible amount of their
international business.
The top three service providers still benefit from hundreds of
millions of customers in their home country. That has attracted
investors to their Chinese-listed shares. The cellphone carriers
have spent billions of dollars on new fifth-generation wireless
networks over the past two years with support from officials in
Beijing, who have called 5G upgrades a national priority.
A China Telecom spokesman had no immediate comment.
The broader U.S. market impact of the delistings is likely to be
limited, in part because large telecom companies haven't been a hot
part of the market recently and in part because these companies
will continue to be traded in Hong Kong, where they are more
closely followed by analysts and investors.
At the same time, the imminent delisting of several major
Chinese companies will get the attention of portfolio managers,
after a yearslong push to ensure Chinese firms' compliance with
U.S. audit rules. While the final outcome of that effort is
unclear, the NYSE decision underscores the fraught politics of the
U.S.-China relationship as the Trump administration comes to a
close.
"The delisting issue is a live one with financial clients," said
Leland Miller, chief executive of China Beige Book International,
which provides data on China's economy to international investors.
"There are some jittery people out there."
NYSE said it would suspend trading in securities issued by China
Mobile, China Telecom and China Unicom by Jan. 11. NYSE said it
would also halt trading in closed-end funds and in exchange-traded
products listed on its NYSE Arca exchange if they hold banned
stocks.
On Friday, China Unicom said it would release a statement in due
course. China Mobile didn't immediately respond to requests for
comment.
An executive order signed by President Trump in November will
block Americans from investing in a list of companies the U.S.
government says supply and support China's military, intelligence
and security services. The ban starts on Jan. 11 and investors have
until November to divest themselves of their holdings.
The list currently includes 35 companies -- including China's
largest chip maker -- as well as surveillance, aerospace,
shipbuilding, construction and technology companies.
It wasn't initially clear whether the order covered subsidiaries
as well as parent companies, and U.S. government leaders clashed
over how broad the blacklist should be, The Wall Street Journal
reported in December.
However, the Treasury Department said recently that it would add
subsidiaries to the blacklist if they were majority-owned -- or
controlled -- by a company that has been named. The Treasury's
Office of Foreign Assets Control, which handles economic sanctions,
also said the ban covered derivatives and depositary receipts, as
well as exchange-traded funds, index funds and mutual funds.
Last month, index compilers including MSCI Inc., FTSE Russell
and S&P Dow Jones Indices said they would remove some Chinese
stocks from their benchmarks because of the order, though they
didn't exclude shares issued by subsidiaries and affiliates.
China Mobile, which has a market value of about $117 billion,
wasn't included on the original blacklist, though its parent --
China Mobile Communications Group -- was. Its U.S. stock is thinly
traded compared with its Hong Kong securities, FactSet data shows.
About 2.1 million American depositary receipts traded daily on
average over the past three months, compared with 34 million Hong
Kong shares a day. Each ADR is equivalent to five ordinary shares
in Hong Kong.
China Mobile's U.S. stock is thinly traded compared with its
Hong Kong securities, FactSet data shows. About 2.1 million
American depositary receipts traded daily on average over the past
three months, compared with 34 million Hong Kong shares a day. Each
ADR is equivalent to five ordinary shares in Hong Kong.
Other U.S. initiatives could also bring more delistings. Last
month, Mr. Trump signed legislation that could have Chinese
companies kicked off U.S. markets if American regulators can't
inspect their audits within three years.
Some Chinese companies, including Alibaba Group Holding Ltd. and
JD.com Inc., have already obtained secondary listings in Hong Kong,
which could help blunt the impact of such an action.
Since their listing on the NYSE, after the privatization of its
predecessor in 1997, China Mobile's U.S. shares have returned 648%,
compared with 501% for the S&P 500, according to Dow Jones
Market Data. But the company's market performance and that of its
Chinese peers have fallen in recent years.
U.S. shares in China Mobile, the largest of the three companies
by market value, declined 29% over the past year, according to
FactSet, while China Telecom dropped 30% and China Unicom fell 39%.
Over the same span, the S&P 500 index returned 18% and the
communications-services sector of the MSCI World Index rose 22%.
All figures reflect total returns, including dividends.
Over the past decade, China Mobile shares have declined 15%
including dividend payments, FactSet data show, while China Telecom
has dropped 32% and China Unicom has fallen 54%. The S&P 500
has gained 267% on the same basis and the MSCI World communications
sector has gained 165%.
Write to Chong Koh Ping at chong.kohping@wsj.com and Drew
FitzGerald at andrew.fitzgerald@wsj.com
(END) Dow Jones Newswires
January 01, 2021 17:12 ET (22:12 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.
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