Chinese oil firms may be next after NYSE removes telecoms operators

China Mobile, China Telecom Corporation and China Unicom Hong Kong's shares will be suspended from January 7 ahead of delisting

View of the NYSE building during snowfall in the Financial District of Manhattan, New York City, New York, U.S., December 17, 2020. REUTERS/Jeenah Moon
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Chinese oil majors may be next in line for delisting in the US after the New York Stock Exchange said last week it would remove the Asian nation’s three biggest telecom companies.

China’s largest offshore oil producer CNOOC could be most at risk as it’s on the Pentagon’s list of companies it says are owned or controlled by Chinese military, according to Bloomberg Intelligence analyst Henik Fung. PetroChina and China Petroleum and Chemical Corporation, also known as Sinopec, may also be under threat as the energy sector is crucial to China’s military, he said.

“More Chinese companies could get delisted in the US and the oil majors could come as the next wave,” said Steven Leung, executive director at UOB Kay Hian in Hong Kong. At the same time, the impact of removing the telecom firms is probably minimal as they were thinly-traded in the US and they haven’t raised much funds there, he said.

The NYSE said it would delist the telecom operators to comply with a US executive order imposing restrictions on companies identified as affiliated with the Chinese military. China Mobile, China Telecom Corporation and China Unicom Hong Kong  would all be suspended from trading between January 7 to 11, and proceedings to delist them have started, the exchange said.

China’s Ministry of Commerce responded on Saturday, saying the country would take necessary action to protect the rights of Chinese companies and it hoped the two countries could work together to create a fair and predictable environment for businesses and investors.

The China Securities Regulatory Commission said on Sunday that given their small amount of US-traded shares the impact on the telecommunications companies would be limited and that they are well-positioned to handle any fallout from the delisting.

“The recent move by some political forces in the US to continuously and groundlessly suppress foreign companies listed on the US markets, even at the cost of undermining its own position in the global capital markets, has demonstrated that US rules and institutions can become arbitrary, reckless and unpredictable,” the CSRC said in a statement on its website.

US President Donald Trump signed an order in November barring American investments in Chinese firms it deemed to be owned or controlled by the military in a bid to pressure Beijing over what it views as abusive business practices. The order prohibited US investors from buying and selling shares in a list of Chinese companies designated by the Pentagon as having military ties.

China’s Foreign Ministry later accused the US of “viciously slandering” its military-civilian integration policies and vowed to protect the country’s companies. Chinese officials have also threatened to respond to previous Trump administration actions with their own blacklist of US companies.

Shares of China Mobile, the largest of the three, fell as much as 4.5 per cent on Monday to their lowest level since 2006, while China Telecom Corp. dropped 5.6 per cent. The two posted their biggest intraday losses since mid-November. China Unicom Hong Kong slipped 3.8 per cent.

The nation’s oil majors including CNOOC also fell on concerns they will be targeted next for delisting in the US. CNOOC fell as much as 5.7 per cent in Hong Kong on Monday, its biggest intraday loss since December 1. PetroChina dropped 2.9 per cent and China Petroleum and Chemical Corporation, also known as Sinopec, slipped 1.4 per cent before reversing the drop.

“It’s largely a blow to sentiment” that could be temporary, said Mark Huang, an analyst at Bright Smart Securities in Hong Kong. “Though the ADRs are not exceptionally large, there’s some impact on fundraising. Some passive index tracking funds may be selling to avert risk. More importantly, this is another reason to dump telecoms and pursue outperforming sectors.”

The decision “may impose short term selling pressure on the stocks,” Citigroup said in a research report. “However, Chinese telcos’ operations are mainly domestic focused and their sound fundamentals along with recovery trends and positive cash flows will not be affected by the delisting, in our view.”

The ADRs total less than 20 billion yuan ($3.1bn) and account for at most 2.2 per cent of the total shares each, the China Securities Regulatory Commission said in a statement on Sunday. China Telecom has 800 million yuan of ADRs and China Unicom has about 1.2bn yuan.

In separate statements on Monday, each telecommunications operator said it “regrets” NYSE’s actions, and said the decision might affect the prices and trading volume of the companies’ shares. All three companies said they hadn’t received any notification from the NYSE about the delisting.

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