Shares of China's three big telcos slide on US delisting move

China Telecom and China Mobile posted their biggest intraday losses since mid-November.
China Telecom and China Mobile posted their biggest intraday losses since mid-November.PHOTO: REUTERS

HONG KONG (BLOOMBERG, REUTERS) - China's state-owned telecommunications companies declined in Hong Kong after the New York Stock Exchange said it's delisting them to comply with a US executive order that sanctioned companies identified as affiliated with the Chinese military.

Shares of China Mobile, the largest of the three, fell as much as 4.5 per cent on Monday (Jan 4) 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 3.6 per cent. The American depositary receipts of the three firms will be suspended from trading between Jan 7 and Jan 11, and the process of delisting them has started, NYSE said.

The nation's oil majors including CNOOC also fell on concerns they will be targeted next for delisting in the US.

"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."

NYSE's move on Friday followed an order by US President Donald Trump in November barring American investments in Chinese firms owned or controlled by the military, in a bid to pressure Beijing over what it views as abusive business practices. China's securities regulator said given the small amount of US-traded shares at each of the three phone companies, the impact on them would be limited and they are well positioned to handle any fallout.

Symbolic blow

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

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 (S$4.09 billion) and account for at most 2.2 per cent of the total shares each, the China Securities Regulatory Commission (CSRC) said in a statement on Sunday. China Telecom has 800 million yuan of ADRs and China Unicom has about 1.2 billion yuan.

The CSRC also said the delisting plans are"politically motivated" and "completely disregards the actual situation of the relevant companies and the legitimate rights and interests of global investors and severely undermines normal market rules and order."

"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.

FTSE Russell Index provider FTSE Russell will say Monday whether it plans to remove more Chinese stocks from its benchmarks, after the US added to its list of sanctioned securities in recent weeks. FTSE Russell had already listed eight company deletions in early December, a decision that was later followed by peers MSCI Inc. and S&P Dow Jones. The changes from FTSE Russell will be effective from the start of trading on Thursday.

In separate statements on Monday, each telecommunications operator said it "regrets" the 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." China's Ministry of Commerce said on Jan 2 that the country will adopt necessary actions to protect the rights of Chinese companies and hopes the two countries can work together to create a fair, predicable environment for businesses and investors.

China has been seeking to avoid escalating the dispute with Washington before Mr Biden takes office in a few weeks. China's Ministry of Foreign Affairs didn't immediately respond on Monday to a request for comment.