China telco shares hit by NYSE delisting announcement

SHANGHAI (Reuters) -Shares in China’s three biggest telecoms companies fell as much as 5% in Hong Kong on Monday, the first trading session since the New York Stock Exchange (NYSE) said it would delist the firms in a move China branded unwise and oppressive.

By the close of trade, the shares had mostly recovered.

The NYSE said on Thursday it would delist China Mobile Ltd, China Telecom Corp Ltd and China Unicom Hong Kong Ltd following the U.S. government’s move in November to block investment in 31 firms it says are owned or controlled by China’s military.

Hua Chunying, a spokeswoman for China’s foreign ministry, said the U.S. move was “unwise”, oppressive, and reflected how “random, arbitrary and uncertain” U.S. rules can be.

“China is firmly opposed to the United States politicisation of the trade issue, the abuse of the state’s power and stretching of the concept of national security to suppress Chinese companies,” she told a regular news briefing on Monday.

The American Deposit Receipts (ADRs) listed by the three companies have a combined market value of under 20 billion yuan ($3.07 billion), or 2.2% of the firms’ equity, the China Securities Regulatory Commission has said.

The delisting could put short term selling pressure on the stocks as the ADR shareholders may convert their holdings into Hong Kong shares before selling them. The stocks’ potential removal from indexes such as MSCI and FTSE could also lead to selling by index funds, said Citi analyst Michelle Fang.

“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,” she said.

After tumbling more than 4.5% to their lowest since July 2007, China Mobile shares closed down 0.79% at HK$43.85. China Telecom closed 2.79% lower, while China Unicom ended up 0.45%, versus a 0.89% rise in the benchmark Hang Seng Index.

All three firms said they had not received a delisting notification from the NYSE.

Citic Securities analysts played down the impact of the delisting decision.

“The three firms on average only have 1.5% of their shares listed in the U.S. and the rest in Hong Kong, have ample liquidity, and haven’t done any fundraising in the U.S. for 20 years. Having shares listed in the U.S. will only pose more risk for them,” they said in a research note.

Washington has hardened its stance against China in recent weeks. In December, it added dozens of Chinese firms to a trade blacklist, accusing Beijing of using them to harness civilian technology for military purposes.

Hua said China would take any necessary measures to safeguard the legal rights of Chinese firms.

“In recent years it’s been quite normal to see Chinese firms delist in the U.S. or have secondary listings in Hong Kong,” the Citic analysts wrote. “With the delisting, the three telcos will get a chance to have their shares re-evaluated and reduce financial disclosure cost.”

($1 = 6.5250 yuan)