(FiveNation.com)- After the Securities and Exchange Commission (SEC) warned that hundreds of Chinese state-owned corporations could be delisted from American stock exchanges for alleged non-compliance with audit rules, a number of the largest ones made plans to withdraw.
Aluminum Corp. of China, Sinopec Shanghai Petrochemical, China Petroleum & Chemical, PetroChina, and China Life Insurance all announced their intention to delist from the New York Stock Exchange in separate filings on the Hong Kong stock exchange, where their shares are already listed (NYSE).
The American Depository Shares of the five companies will be delisted shortly after they submit the necessary paperwork to the SEC by the end of the month.
The Holding Foreign Companies Accountable Act (HFCAA) list was expanded to include all five companies in May after U.S. officials determined they did not adhere to auditing criteria.
The Wall Street Journal named PetroChina as one of the corporations that claimed that being listed on a U.S. stock exchange came with a “substantial administrative burden for meeting the disclosure duties.”
On the HFCAA list are more than 150 Chinese companies that risk delisting from American exchanges if American regulators cannot review financial audits for three years running.
SEC Chair Gary Gensler has expressed doubt about the likelihood of reaching an agreement with Beijing despite American regulators engaging with their Chinese colleagues to achieve compliance with the HFCAA.
Gensler told Bloomberg in an interview in late July about the probability of an agreement, “I really just don’t know right now.” He continued, “It’s going to be decisions made by the authorities there.
The HFCAA was enacted in 2020 to safeguard American investors against fraudulent practices by Chinese businesses exempt from U.S. audit regulations.
Chinese regulators have long refused to grant American regulators access to the audit documents of their accounting firms, citing state secrecy as their justification. This prompted lawmakers to pass the bill.
Although Congress is considering a bill pushing back that deadline to 2023, the legislation currently provides Chinese corporations until early 2024 to comply with U.S. auditing rules.
After Congress passed the bill with unusually bipartisan support in December 2020, former President Donald Trump signed the HFCAA into law.
Former Trump administration trade negotiator Clete Willems told the Wall Street Journal in late May that until China demonstrates “more flexibility” around compliance with U.S. auditing rules, “the delisting of some or all of its firms is inevitable.”
