Chinese companies face limited ratings risk if they are forced to delist by the US: S&P

Of rated Chinese firms with primary US listings, only one faces potential default triggers, according to S&P

US has proposed rules that would require foreign issuers to delist if they do not share audits for review by January 2022

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The trading floor of the New York Stock Exchange. China was the only country mentioned by name among non-cooperating jurisdictions in a report issued by The President’s Working Group on Financial Markets this month. Photo: AFP

Published: 3:30pm, 18 Aug 2020Updated: 10:41pm, 18 Aug 2020

Chinese companies face minimal risk to their credit ratings if they are forced to delist from American bourses under rules proposed by a group of top United States regulators, according to credit rating agency S&P Global Ratings.

The loss of equity funding channels can limit financing options, and, in some cases, trigger a default event that accelerates the payment of debt, S&P credit analyst Clifford Kurz said in a research note on Tuesday. Most rated Chinese firms listed in the US, however, have other funding options, including potential listings in Hong Kong or on the Star Market in Shanghai, he added.

“Other global bourses, as well as China’s domestic markets, have been setting the stage to attract Chinese listed firms that might no longer trade on US bourses. Given alternative options, as well as the potential for dual-listed firms to convert US [stock] into shares in Hong Kong, we do not expect any forced delisting would lead to downgrades,” Kurz said.

The President’s Working Group on Financial Markets, which includes representatives from the US Treasury Department, the Federal Reserve and the Securities and Exchange Commission, recommended this month that foreign issuers, including Chinese firms, be required to share their audit working papers for review to issue new shares, or continue to be listed in the US. If they do not do so by January 2022, foreign issuers could be delisted from American stock exchanges. China was the only country mentioned by name among non-cooperating jurisdictions in the group’s report.

Of Chinese firms listed in the US and rated by S&P, only one – 21Vianet Group – faces the potential of default triggers in the event of a delisting, mainly related to the accelerated repayment of US dollar-denominated debt, according to S&P.

Companies without existing dual listings would face greater risks, particularly if they have lower credit ratings and weaker liquidity, S&P said. Rated Chinese firms should, however, have sufficient time to pursue listings outside the US if needed, the agency said.

As of early July, companies had raised US$15 billion through initial public offerings (IPOs) and secondary listings on Shanghai’s Nasdaq-like Star Market, putting it second globally to Nasdaq’s US$18 billion raised in that period, S&P said.

Citigroup said in a research report this month that Hong Kong Exchanges and Clearing (HKEX), the operator of the city’s bourse, could benefit if Hong Kong gains further popularity as a listing venue because of US threats to potentially delist Chinese firms. “In the long run, it also depends on how Beijing weighs Hong Kong in its financial landscape,” Shujin Chen, a Citigroup analyst, said in the August 5 research report.