Thursday, September 29 2022

Five New York-listed Chinese companies have been named by US regulators as the first of 270 groups that will be delisted if they fail to hand over detailed audit documents supporting their financial statements.

The U.S. Securities and Exchange Commission said fast food giant Yum China, biotech groups BeiGene, Zai Lab and HutchMed and tech firm ACM Research were at risk of delisting. The announcement triggered a sell-off in US-traded Chinese stocks.

The regulator’s decision comes after the United States passed a law in December 2020 that required Chinese companies listed in the United States to allow oversight bodies such as the Public Company Accounting Oversight Board to review their financial audits.

The Holding Foreign Companies Accountable Act set a three-year deadline for companies and their auditors to comply. Thursday’s SEC notice begins the countdown to compliance for all five companies.

The SEC-named companies, which are the first Chinese groups to file their 2021 annual reports, will be forced to withdraw from the New York Stock Exchange and the Nasdaq if the US accounting oversight board is unable to inspect their audit files for three years. years.

Beijing has blocked domestic companies and their Chinese auditors from complying with these requests from foreign regulators. Escalating tensions could threaten trading in US-listed stocks worth more than $2 billion and effectively crippled a once vibrant market for Chinese listings in New York.

China’s securities regulator said Thursday it “opposes the politicization of securities regulation by certain forces,” but added it was in communication with the U.S. audit regulator to resolve the issue. standoff over foreign access to Chinese company documents.

“We believe both parties can reach an agreement that is consistent with the laws and regulations of both countries . . . that protects global investors,” the regulator added.

Yum China, which operates the KFC and Pizza Hut brands in the world’s largest consumer market and has a market value of $21 billion, fell 15% on Thursday. ACM Research fell 27%, HutchMed 8% and Zai Lab 19%.

Yum China warned in a U.S. regulatory filing in late February that due to “factors beyond our control, including approval from Chinese authorities,” its shares would be delisted from the NYSE in early 2024.

BeiGene, which is the largest of the five companies with a market value of $22 billion, fell 12% on Thursday. Only about 54% of the company’s listed shares are traded in New York, with the rest traded in Hong Kong and Shanghai.

Jefferies analyst Michael Yee said the SEC’s list is likely to grow as more companies release their annual filings and provide details about their accounting standards. He said the inclusion of three Chinese biotech companies by the SEC would not help sentiment towards a sector that was already under pressure from investors.

China’s tech sector was also more widely affected this week. In the US, video streaming platform iQiyi fell 22%, while rival Bilibili fell 14%. New York shares of Jack Ma’s Alibaba Group fell 9%.

“Investors have recently been nervous due to extensive regulatory uncertainties in China, geopolitical risks involving China/US, and multiple SEC-related investigations involving Chinese stocks, all of which have heightened stock uncertainty. Chinese,” Yee said.

The uncertainty has led to an increase in secondary listings of Chinese companies in Hong Kong over the past three years, including by Alibaba, JD.com and NetEase. On Thursday, electric car maker Nio began trading its shares in Hong Kong following Washington’s move to increase scrutiny of its books.

BeiGene, Zai Lab and ACM Research said they are working to comply with the law and fully expect to maintain their listings. Yum China and HutchMed did not immediately respond to requests for comment, while the SEC declined to comment.

Additional reporting by Ryan McMorrow in Beijing and Eric Platt in New York

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