Home > News content

The risk of delisting of Chinese stocks has hit Hong Kong stocks hard, explain what the SEC will do next?

via:新浪科技     time:2022/3/11 22:08:42     readed:161

Author/Irene Zhou

On March 10, the U.S. Securities and Exchange Commission (SEC) made new progress in the determination of the delisting of Chinese stocks, triggering a sharp decline in Chinese stocks overnight, with the Hang Seng Index of Hong Kong closing down 1.61% and the Hang Seng Technology Index falling 4.28% on the 11th.

The next night, the SEC's official website published a list of 5 Chinese companies. Based on the Foreign Companies Accountability Act (HFCAA), the SEC has the power to delist a foreign public company from the exchange if it fails to file a report required by the U.S. Public Company Accounting Oversight Board for three consecutive years, SEC said. The SEC finalized the tentative list on March 8, including BeiGene, Yum China, Zaiding Pharmaceutical, Sheng Mei Semiconductor, and Huang Pharma. The five companies could provide evidence to the SEC by March 29 that they were not eligible for delisting.

After the U.S. stock market opened, BeiGene fell 10.22%, Yum China fell 8.46%, Zaiding Pharmaceutical fell 17.07%, Shengmei Semiconductor fell 20.61%, and Huang Pharmaceutical fell 8.45%. Affected by this, a number of Chinese stocks experienced a "Black Thursday", with Station B down 14%, Pinduoduo down 17%, and Alibaba down 8%.

Investment banks and law firms interviewed by the first financial reporter said that with the disclosure of annual reports, the "tentative list" may be expanded, and 2024 is a key delisting observation window, and it is necessary to be vigilant against the intensification of offshore market volatility. Wang Ying, a stock strategist at Morgan Stanley China, recently said, "In the next step, the relevant company has 15 working days to appeal the SEC's decision, and after that (if the appeal is rejected), the first year of inspection will finally determine non-compliance." "Starting from the beginning of 2022 at the earliest, the relevant listed companies will begin a 3-year delisting evaluation period.

  2024 is the delisting observation window

On the morning of the 11th, a number of Hong Kong listed companies responded to the impact of the relevant situation on the company.

Yum China said the company's common stock could be delisted from the New York Stock Exchange in early 2024; Zaiding Pharmaceutical said the company's provisional determination did not mean it would be delisted from the NASDAQ exchange by the SEC; and BeiGene said it had been actively seeking solutions to meet the requirements of the Foreign Company Accountability Act. BeiGene, which is listed on U.S. and Hong Kong stocks, was listed on the Science and Technology Innovation Board last year.

Several of the 5 companies have issued statements indicating plans to move to an audit body approved by the PCAOB (U.S. Public Corporation Accounting Oversight Board) during the 3-year review period. BeiGene also said it was optimistic about finding a solution. However, it remains to be seen whether this approach will work for all Chinese stocks. "For example, another company on the list, Yum China, said in its latest filings with the exchange that it did not have such a plan." ”

In December, the SEC passed amendments that finalized the implementing rules for the Foreign Companies Accountability Act, and on November 5 of the same year, the SEC approved the PCAOB framework as a way to determine whether the relevant companies were unable to fully review certified public accountants located in overseas jurisdictions because of the positions taken by one or more jurisdictions.

As early as December 2, 2020, the U.S. has completed all the rulemaking work needed to begin implementing HFCAA. At the end of 2021, the SEC's final guidance added a series of elements. For example, SEC-identified issuers ("CIIs") are registered companies that have been identified by the SEC as having submitted annual reports whose audit reports have been determined by the PCAOB to be "non-inspection". Disclosures include: 1) documents evidencing that the company is not owned or controlled by a government entity in the foreign jurisdiction in which the accounting firm is located; 2) additional disclosures, if applicable, in connection with the use of the VIE structure; and 3) the VIE structure of the company is subject to HFCAA, subsequent determinations, and termination of transaction requirements.

Mainstream institutions have previously judged that the SEC will identify CII, that is, "unreviewed" issuers, as early as after registrants submit their 2021 annual reports and identify their auditors. Now, with the arrival of the annual reporting season, the SEC announced that it has officially begun to use the list of companies that have not been reviewed" audit institutions, as announced on the evening of the 10th, the relevant listed companies will begin a 3-year delisting evaluation period. This will lead to a downward revision in the valuation of Chinese stocks, and international institutions will begin to be cautious about the offshore market.

Wang Ying told reporters in December last year, "Given that the SEC/PCAOB is unable to determine the CII before the submission of the 2021 annual report (before the spring of 2022), this means that the delisting will not be earlier than 2024 (after the CII submits the 2023 annual report and is reviewed by the SEC)." ”

  The "provisional list" may be expanded

The key question is whether more companies will be added to the tentative list. When does it appear?

Wang Ying said that in the coming weeks, as more companies officially release their annual reports, the SEC will put related companies on the tentative list.

"After the company formally submits its final report, it takes only 3 business days for the SEC to finalize the list. Next, the company has 15 business days to appeal the SEC's decision, after which (if the appeal is rejected), the first year will eventually be judged to be a 'non-inspection year'. The companies will be required to disclose their relationship with the government and the impact they have been affected in next year's annual report. ”

In addition, there may be some variables in the relevant regulations in the future, which may further trigger market volatility. Morgan Stanley previously believed that the current 3-year evaluation period could be shortened to 2 years under the Accelerating HFCAA, which is pending a vote in the House of Representatives before it is formally legislated (there is no voting date yet), which was publicly supported by two financial industry associations last year.

  The attitude of the China-US Securities and Futures Commission is the key

In the interview, a number of lawyers, enterprises and investment institutions told reporters that the attitude of Chinese and AMERICAN regulators in the future is the key. In the face of uncertainty, the positions of some investment institutions in ADR (American Depositary Receipts) have dropped to a low level, or turned to Hong Kong stocks with "secondary listing".

In the early morning of March 11, Beijing time, the official WeChat account of the China Securities Regulatory Commission issued an announcement that in recent times, the China Securities Regulatory Commission and the Ministry of Finance have continued to communicate and dialogue with the Accounting Supervision Committee (PCAOB) of public companies in the United States, and have made positive progress. "We believe that through joint efforts, the two sides will be able to make cooperation arrangements that meet the legal provisions and regulatory requirements of the two countries as soon as possible, jointly protect the legitimate rights and interests of global investors, and promote the healthy and stable development of the markets of the two countries."

"The positions of pure Hong Kong-only global funds in Chinese stocks have basically fallen to a very low level in the past five years," said Pang Min, chief economist and chief strategist of Huaxing Securities (Hong Kong).

Wang Yajun, co-head of goldman Sachs Asia (except Japan), said in an interview with the first financial reporter that "the return of Chinese stocks in 2022 will continue to be active, but the general direction of mutual opening and integration of The Chinese and US capital markets will not change, and it is expected that the Chinese and US regulatory authorities can reach a solution on technical issues such as audit papers." ”

translate engine: Bing

China IT News APP

Download China IT News APP

Please rate this news

The average score will be displayed after you score.

Post comment

Do not see clearly? Click for a new code.

User comments