NYSE back-pedals again with plan to delist China telecom firms

New York

THE New York Stock Exchange is proceeding with a plan to delist three major Chinese telecommunications firms, its second about-face this week, after US Treasury Secretary Steven Mnuchin criticised its shock decision to give the companies a reprieve. The pivot comes after the exchange's earlier move caught US officials off-guard.

The exasperation reached the highest levels of the administration of President Donald Trump, who signed an executive order in November requiring investors to pull out of Chinese businesses deemed a threat to US national security. The NYSE's back-and-forth moves have also sowed deep confusion in global financial markets.

The decision is based on "new specific guidance received on Jan 5, 2021, that the Department of Treasury's Office of Foreign Assets Control (OFAC) provided to the NYSE," the exchange said in a statement on Wednesday. "The issuers have a right to a review of this determination."

The new guidance referenced by the NYSE was published on the Treasury Department's website shortly after the delisting announcement. The agency's OFAC explicitly listed the three Chinese telecom firms as falling under the list of prohibited companies.

Mr Mnuchin entered the fray on Tuesday, calling NYSE Group president Stacey Cunningham to express his displeasure with the decision to let China Mobile, China Telecom and China Unicom Hong Kong keep trading on the Big Board, according to people familiar with the matter.

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The NYSE first announced it would delist the companies on New Year's Eve, before changing course four days later. The initial decision was meant to comply with Mr Trump's order, but the exchange reversed itself after questions emerged over whether the companies were actually banned, according to sources.

The trio of companies lost more than US$30 billion in market value in the final weeks of 2020 as investors pulled back following Mr Trump's order, then shed as much as US$12 billion more as their American depositary receipts tumbled on Monday on the NYSE's decision to delist them. Prices climbed on Tuesday after the NYSE cancelled the delisting, and then softened again after Bloomberg reported that the exchange may proceed after all.

China Mobile's American depositary receipts slid as much as 4.2 per cent in New York on Wednesday morning, while China Telecom slumped 4.1 per cent. China Unicom rose as much as 3.6 per cent.

"It's odd for the NYSE to get this so wrong," said Bloomberg Intelligence analyst Larry Tabb. "Their marketing and public relations team has historically been one of the best. It's bad enough to do a 180 on this within a week, but to go 360 degrees on such a major move so quickly means that they either got this terribly wrong, or there was significant outside pressure driving these decisions."

The order bans trading in the affected securities starting Jan 11. If President-elect Joe Biden leaves Mr Trump's executive order in place, US investment firms and pension funds would be required to sell their holdings in companies linked to the Chinese military by Nov 11.

And if the US determines additional companies have military ties in the future, American investors will be given 60 days from that determination to divest.

Since the start of the coronavirus pandemic, Mr Trump's administration has ramped up its attacks on China, imposing sanctions over human-rights abuses and the nation's crackdown on Hong Kong.

The US also has sought to sever economic links and deny Chinese firms access to American capital.

Hardliners in the administration have warned investors for months that Chinese companies could be delisted from US exchanges. As far back as August, a senior State Department official, Keith Krach, wrote a letter warning universities to divest from Chinese firms ahead of possible delistings.

China said the US "has been flipping flopping all the time" and urged it to respect market principles.

"Some politicians in the US have been oppressing foreign companies listed in the US," Foreign Ministry spokeswoman Hua Chunying told a daily briefing in Beijing on Wednesday. "This has rather limited impact on the Chinese companies, but it will hurt the US national interests and its own image, and will hurt its global status as a capital market."

Ms Hua said she hoped the US would "do more things conducive to the global financial market system, protect the investors' rights and interests, and do good for global economic stability and development."

While China has largely dismissed any move to delist the stocks as having minimal impact on the businesses, it has maintained that such a step would hurt the US more than the Chinese government.

Calling the delisting decision as unwise, the China Securities Regulatory Commission earlier said that the US risks undermining its own position in the global capital markets by showing its rules and institutions can become "arbitrary, reckless and unpredictable".

Beijing hasn't announced retaliatory measures, and has been seeking to avoid an escalation of the tensions before president-elect Joe Biden steps into the White House.

But state-backed media have cited analysts suggesting China can ask US companies operating in the country to disclose military links.

During a previous briefing on Tuesday, Ms Hua said that "many American multinational companies are the result of military-civil fusion themselves" and that on this issue, the US was "applying double standards to contain China's development".

Investors are concerned potential delistings may extend to oil majors such as Cnooc Ltd, which is on the Pentagon's list of companies the US says are owned or controlled by Chinese military. BLOOMBERG