NYSE delisting hints Beijing may be ready to settle on US audit dispute – analysts

A trader enters the floor of the New York Stock Exchange (NYSE) on June 14, 2022 in New York City, US. REUTERS/Brendan McDermid

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HONG KONG, Aug 15 (Reuters) – The move to delist five Chinese state-owned enterprises (SOEs) from the New York Stock Exchange (NYSE) indicates that Beijing is ready to settle for an audit deal with the United States. and end the more than a decade-old dispute, analysts and advisors said on Monday.

Five SOEs, including oil major Sinopec (600028.SS) and China Life Insurance (601628.SS), whose audits are under scrutiny by the US securities regulator, said on Friday they would voluntarily withdraw from the NYSE. read more

The US Securities and Exchange Commission (SEC) in May flagged five and several others as failing to meet US auditing standards, and the delisting prompts Sino-US auditors to access the accounts of private Chinese companies listed in the United States. may compromise on allowing access. states, some analysts said.

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Beijing and Washington are in talks to end a dispute that threatened to kick hundreds of Chinese firms out of their New York listings if China followed Washington’s demand for full access to the books of US-listed Chinese companies. did not follow.

“Not listing state-owned companies in the US allows the Chinese side to negotiate a settlement,” said a lawyer for Hong Kong’s capital markets.

“They were more concerned about accessing SOE’s accounts,” the lawyer said, referring to officials in Beijing. “A lot of private companies are thought to have data that is not as sensitive as SOEs.”

However, some observers were less optimistic about the impact of the removals.

“By taking state-owned enterprises off the table, it would, in theory, give the Chinese more room to make some concessions,” said Paul Gillis, a retired professor at Peking University’s Guanghua School of Management.

“But I think with the overall political climate between the US and China, it is difficult to reach an agreement.”

full access

US regulators have been demanding full access to audit working papers of Chinese companies listed in New York for years, but Chinese officials have pushed back on national security grounds.

In May, an SEC official said China could agree to a voluntary list of companies deemed “too sensitive” to comply with US requirements, which would ensure that the remaining companies and audit firms would follow through on US inspection and investigation procedures. and avoid potential trade restrictions. ,

Since then, however, the US Public Company Accounting Oversight Board (PCAOB), which regulates audits of US-listed firms and oversees the SEC, has said that de-listing companies will not bring China into compliance because of US regulations. agency is required. Have retrospective access to the company’s audit records.

A PCAOB spokesperson said on Monday that the PCAOB’s position in the matter has not changed. An SEC spokesperson did not immediately respond to a request for comment.

The China Securities Regulatory Commission did not respond to a question on Monday afternoon.

With more than 270 Chinese companies identified as being at risk of trade prohibition, the PCAOB has determined they do not have full access to their audit papers.

Concerns about the future of those companies on the New York exchanges have grown in recent months, with global fund managers shifting US-listed Chinese shares to their Hong Kong-traded peers. read more

Alibaba Group Holding announced a fortnight ago that it would convert its Hong Kong secondary listing to a dual primary listing, which analysts said would make it easier in the future if the e-commerce giant ever wanted to delist in the United States. Is.

Weiheng Chen, head of Greater China practice at law firm Wilson Soncini, said, “For private enterprises listed in the US, should they be allowed more discretion to cooperate with the PCAOB, it may be due to the data in their audit paper.” Depends on sensitivity.” ,

Chen said private enterprises holding large amounts of geographic data and data that track the location, movements and social behavior of individuals and companies could be viewed as sensitive.

After the delisting of five SOEs, only two state-owned firms will remain listed in the United States – China Eastern Airlines (600115.SS) and China Southern Airlines (600029.SS).

“China should be motivated to cooperate with the US SEC to ensure that Chinese companies without any sensitive information will not be cut off from US capital markets,” the Jefferies analysts wrote.

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Reporting by Scott Murdoch, Ken Wu, Zi Yu and Samuel Shen; Editing by Sumeet Chatterjee, David Holmes and Margarita Choy

Our Standards: Thomson Reuters Trust Principles.

Scott Murdoch

Thomson Reuters

Scott Murdoch has been a journalist in Australia for more than two decades, working for Thomson Reuters and News Corp. He has specialized in financial journalism for most of his career and has covered equity and debt capital markets throughout Asia, based in Hong Kong.

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