Technology Jan 06

NYSE says telecoms delistings to proceed after second U-turn

Share prices in China Telecom, China Mobile and China Unicom have whipsawed this week with each twist as some analysts urge investors to sit tight until a resolution is achieved

by George Russell and Chris Gill
NYSE says telecom delistings to proceed after second U-turn
The logos of China Telecom, China Mobile and China Unicom are seen during the China International Import Expo in Shanghai. Shares in the telecommunications giants have fluctuated with each twist of the saga. File photo by Reuters.

(ATF) In another twist to the possible US delisting of three huge Chinese telecommunication companies, the New York Stock Exchange is reportedly again considering booting them off the exchange, according to multiple reports.

The potential second U-turn illustrates the conflict between rules set by the Trump administration and established guidelines within the US regulator bureaucracy.

Share prices in the three companies – China Telecom, China Mobile and China Unicom – have whipsawed this week with each turn of the saga and some analysts have urged investors to sit tight until a final decision is made.

On Monday the companies saw a selloff after the NYSE announced the delisting plans on the back of a Trump administration executive order targeting firms with alleged Chinese military affiliation. 

Then on Tuesday the NYSE issued a statement saying “it no longer intends to move forward with the delisting action”, fuelling sharp rises in the three carriers' share prices. 

The brief statement said the exchange had contacted the US Office of Foreign Assets Control, and indicated that it had advised that the three companies fell under the investment threshold that would cause their delisting.

The about-face was due to ambiguity over an executive order issued by President Donald Trump barring investment in firms Washington says are tied to the Chinese military, and whether the three firms were banned under the order, a source familiar with the matter said on Tuesday.

"The official statement reversing its decision was relatively vague," said Mark Haefele, chief investment officer at UBS Global Wealth Management in New York.

Senator slams NYSE decision

The decision not to delist the three Chinese telcos was condemned by Senator Marco Rubio on Tuesday January 5.

“If it is true that someone at US Treasury advised NYSE to reverse the decision to delist these Chinese companies it was an outrageous effort to undermine (Trump’s) executive order,” Rubio said in a tweet on Tuesday. 

Rubio increasingly defines himself by opposition to China - his Twitter bio starts: “banned in and sanctioned by China” - and the complaint about the change in stance by the NYSE indicates that political controversy over the attempt to deny some Chinese companies access to US capital markets will remain intense in the final days of the Trump administration and continue after Joe Biden becomes president on January 20.

Wait and see attitude

The latest twist was reported later on Tuesday with both Reuters and Bloomberg reporting that the exchange will now go ahead with the delistings, which were planned on or before January 11.

Wednesday trading in the three companies' shares showed little movement, suggesting investors are waiting on a final decision, and Haefele cautioned that the delisting saga might not be over. 

China Telecom shares rose 1.4% in morning Hong Kong trading on Wednesday, while China Mobile fell 1.3% and China Unicom dipped 0.4%. "As we noted when shares were selling off, we suggest investors await clarity from the incoming Biden administration before taking action," Haefele said.

Tariq Dennison, managing director at GFM Asset Management in Hong Kong, told Reuters he had almost completely unwound his positions in China Mobile shares in both Hong Kong and New York.

He added that he needed to find investments for US clients with less exposure to risks associated with the investment ban.

Reuters reported that US Treasury Secretary Steven Mnuchin phoned NYSE president Stacey Cunningham on Tuesday to tell her he disagreed with the decision to reverse course on the delistings, prompting the second U-turn.

'Short-sighted US politicians': CCTV

Meanwhile, the delisting saga at the New York Stock Exchange has been getting plenty of play on China's state media outlets. CCTV, the national broadcaster, said on Tuesday it was worrying is that the two country's "foundation of trust" was being shaken by some American politicians. 

The US's pursuit of Chinese technology companies and launch of its 'clean-net operation' would hinder international telecommunications services and reflected the "arbitrariness, and uncertainty" of US rules and systems, it said.

“This is an irrational act, trust is being kidnapped by some short-sighted politicians. If the US arbitrarily breaks the principles of market competition and international economic and trade rules, it will inevitably harm US national interests and its own image in the long run."

It described Trump's order to delist the telcos as "an old trick by the outgoing US government that is unwilling to leave" and wanted to continue to politicize trade issues. The New York Stock Exchange, it said, was only a "gunner" being "used to suppress China.”

CCTV said if the NYSE delists the three Chinese telecom firms it would cause far-reaching harm to the interests of the Exchange and the United States.

However, China's Securities Regulatory Commission noted that the overall ADR scale of the three companies was not large – it amounted to a total market value of less than 20 billion yuan (nearly $3 billion), or only 2.2% of the total equity of the three companies. (China Telecom has about 800 million yuan in equity in the NYSE, while the figure for China Unicom was about 1.2 billion yuan). 

Peter Milliken, head of Deutsche Bank’s Asia Pacific Telecommunications Research Department, said: “These Chinese companies are cashflow machines and do not need new funds from the United States or anywhere else.” So, even with delisting, the direct impact on the company's development and market operation would be "quite limited."

ALSO SEE:

NYSE starts process of delisting three Chinese telecoms companies

NYSE drops plan to delist Chinese telcos

Marco Rubio condemns NYSE U-turn on telecoms delistings

telecoms China US regulation Trump US-China tension