China’s three telecoms operators face sell-off as New York Stock Exchange moves to delist their depositary receipts
- NYSE announces plan to delist ADRs of China’s three big telcos to comply with a ban on so-called Communist Chinese military companies
- Their ADRs and stocks have slumped up to 39 per cent in 2020 from the pandemic and US actions to restrict investment and trade involving blacklisted firms
The US exchange will remove American depositary receipts (ADRs) issued by China Telecom, China Mobile and China Unicom some time between January 7 to 11 to comply with Trump’s November 12 executive order, according to a statement late on Thursday. A Treasury Department clarification last week defined the scope of the ban on US investors and the prohibited assets of the blacklisted Chinese firms and its units.
“Their securities have already fallen a lot since the executive order was first announced, especially in China Mobile’s case,” said Louis Tse Ming-kwong, managing director of Wealthy Securities in Hong Kong. “News of their delisting in the US is merely another step in the process, which the market had already anticipated.”
The average daily trading volume of China Mobile ADRs was 6.9 per cent of its H-shares in 2020, compared to 12 per cent for China Telecom and 9.9 per cent for China Unicom, according to Bloomberg data. Each of the ADRs represent five, 10 and 100 of the underlying ordinary shares, respectively.
Funds managed by Bank of America, Morgan Stanley, Norges Bank, Lazard, Rockefeller Capital Management, and Royal Bank of Canada are listed among the biggest investors in the three Chinese telecoms companies, according to data compiled by Bloomberg.
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Still, the downside may be limited in the short term because most of the impact has already been priced in. Some non-US investors will be attracted by their low valuation, said Gordon Tsui, chairman of Hantec Pacific and president of Hong Kong Securities Association.
China Mobile has fallen 16 per cent in Hong Kong since the November 12 executive order, compared to a 4 per cent gain of the Hang Seng Index. China Unicom has declined 16.5 per cent while China Telecom has retreated 20 per cent.
“The key to their mid-to-long term valuation is their profitability outlook and dividend payouts, which are looking increasingly attractive after the sell-off,” Tsui added.
Funds from the European Union, which has just concluded “in-principle” negotiations for a Comprehensive Agreement on Investment with China that would give EU investors greater market access in China, may be among the bargain-hunters, according to Tse at Wealthy Securities.
Wang Wenbin, a Chinese foreign ministry spokesman, said the move was politically motivated to stigmatise and discredit China’s policy of military-civilian integration. The decision will not only damage the interests of Chinese companies but also US and global investors.
Major stock and index compilers including MSCI, FTSE Russell and S&P Dow Jones Indices have reacted by removing some of the blacklisted constituent stocks and bonds from their global benchmarks to adhere to the executive order.