China’s three major telecommunications chips on NYSE’s move to remove ADRs

Photographer: Michael Nagle / Bloomberg

Do you want the delivery of what makes the Asian markets move in your inbox every morning? Sign in here.

China’s state-owned telecommunications companies declined in Hong Kong after the The New York Stock Exchange said it was delisting to comply with a U.S. executive order approving companies identified as affiliated with the Chinese military.

Shares of China Mobile Ltd., the largest of the three, fell Monday to 4.5% to its lowest level since 2006, while China Telecom Corp fell 5.6%. The two have had their biggest intraday losses since mid-November. China Unicom Hong Kong Ltd. slipped by 3.6%. The U.S. depository receipts for the three businesses will be suspended between Jan. 7 and Jan. 11 and the delisting process has begun, the NYSE said.

The country’s oil majors including CNOOC Bpk. Also worried that they will next focus on the delisting in the US

“This is largely a blow to sentiment,” which could be temporary, said Mark Huang, an analyst at Bright Smart Securities in Hong Kong. ‘Although the ADRs are not extraordinarily large, there is some impact on fundraising. Some passive index tracking funds may sell to avoid risks. More importantly, it’s another reason to shower telecommunications and perform better than sectors. ”

The NYSE’s move follows an order from US President Donald Trump in November to ban US investment in Chinese-owned or controlled enterprises in an effort to put Beijing under pressure over what he calls insulting business practices considered. China’s security regulator said as the small amount of US shares traded at each of the three telephone companies, the impact on them will be limited and they are well positioned to handle any fallout.

Symbolic battle

The delisting is more of a symbolic blow amid heightened geopolitical friction between the two largest economies in the world, as it is traded on the NYSE. The companies also get almost all of their revenue from China.

The decision “could put short-term selling pressure on the shares,” said Citigroup Inc. said in a research report. “However, the Chinese telecommunications operations are mainly focused on the interior, and our sound principles coupled with recovery trends and positive cash flow will not be affected by the delisting.”

The ADRs amount to less than 20 billion yuan ($ 3.1 billion) and account for no more than 2.2% of the total shares each, China Securities Regulatory Commission said in a statement Sunday. China Telecom has 800 million yuan ADRs and China Unicom has about 1.2 billion yuan.

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

FTSE Russell

Index Provider FTSE Russell Hall said Monday whether it intends to remove more Chinese shares from its benchmarks, after the U.S. added to its list of certified securities in recent weeks. FTSE Russell already listed eight company transfers in early December, a decision later followed by peers MSCI Inc. and S&P Dow Jones. The changes from FTSE Russell take effect from the start of trading on Thursday.

In separate statements on Monday, each telecommunications operator said it “regrets” the actions of the NYSE and said the decision could affect the prices and trading volume of the companies’ shares. All three of the companies said they had not received any notice from the NYSE from the NYSE.

China Unicom and China Mobile said they were reviewing ways to protect the “legal rights” of the companies. China Telecom said it was considering “matching options” to “protect the legitimate interests of the company”.