Three major Chinese telecommunications companies collapse on NYSE’s decision to remove ADRs

Photographer: Michael Nagle / Bloomberg

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China’s state-owned telecommunications companies declined in Hong Kong after the The New York Stock Exchange said it was removing the list to comply with a US executive order that sanctioned companies identified as affiliated with the Chinese armed forces.

Actions of China Mobile Ltd., the largest of the three, fell 4.5% on Monday to its lowest level since 2006, while China Telecom Corp. fell 5.6%. The two recorded their biggest intraday losses since mid-November. China Unicom Hong Kong Ltd. fell 3.6%. American depositary receipts from the three companies will be suspended from trading between January 7 and 11, and the deregistration process has started, the NYSE said.

The country’s largest oil companies, including CNOOC Ltd. also fell on concerns that it will be the next targets for delisting in the US

“It is largely a blow to sentiment” that can be temporary, said Mark Huang, an analyst at Bright Smart Securities in Hong Kong. “Although ADRs are not exceptionally large, there is some impact on fundraising. Some passive index tracking funds may be selling to avoid risk. More importantly, this is another reason to discard telecommunications and seek sectors with superior performance. “

The NYSE action followed an order from U.S. President Donald Trump in November, preventing American investments in Chinese companies owned or controlled by the military in an attempt to pressure Beijing on what it considers abusive business practices. China securities regulator he said, given the small number of shares traded in the United States in each of the three phone companies, the impact on them would be limited and they are well positioned to handle any downturn.

Symbolic Strike

Going public is another symbolic blow amid increased geopolitical friction between the two largest economies in the world, as they are barely traded on the NYSE. Companies also obtain almost all of their revenues from China.

The decision “may impose short-term selling pressure on the shares,” said Citigroup Inc. in a research report. “However, the operations of Chinese telecommunications are mainly domestic and their solid fundamentals, together with recovery trends and positive cash flows, will not be affected by the delisting, in our opinion.”

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

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

FTSE Russell

The index provider FTSE Russell will say on Monday whether it plans to remove more Chinese shares from its benchmarks after the US has increased its list of sanctioned bonds in recent weeks. FTSE Russell had already listed eight company exclusions in early December, a decision that was followed by his peers MSCI Inc. and S&P Dow Jones. The FTSE Russell changes will take effect at the start of negotiations on Thursday.

In separate statements on Monday, each telecoms operator said it “regrets” NYSE shares and said the decision could affect the company’s share prices and trading volume. All three companies said they had not received any notification from the NYSE about the delisting.

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