HomeLatest NewsUS delisting risk halved for Chinese ADR stocks after the deal

US delisting risk halved for Chinese ADR stocks after the deal

The China Securities Regulatory Commission and the US Public Company Accounting Oversight Board announced on Friday that the two sides have signed an agreement to cooperate in inspecting the audit work papers of US-listed Chinese companies. Here is a picture of the CSRC building in Beijing in 2020.

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BEIJING – The risk of delisting Chinese stocks from US exchanges has nearly halved after regulators reached an audit agreement, Goldman Sachs analysts said in a report on Monday.

The China Securities Regulatory Commission And US Public Company Accounting Oversight Board announced on Friday that the two sides had signed an agreement to cooperate in inspecting audit work papers of US-listed Chinese companies. China’s Ministry of Finance also signed the agreement.

“This is definitely a regulatory breakthrough,” said Kinger Lau of Goldman Sachs and a team, cautioning that much uncertainty remains.

They noted that the PCAOB said the agreement was only a first step, while the Chinese side said they would provide assistance” In inspection.

The PCAOB said it plans to have inspectors on the ground in China in mid-September and will decide in December whether China is still blocking access to audit data.

Analysts at Goldman Sachs said on Monday that their model could “determine the market value in about a 50% chance” that Chinese companies could list from the US.

That’s down from 95% in mid-March – the highest on record going back to January 2020.

By the end of 2020, the U.S Holding Foreign Companies Accountable Act became law. It allows the US Securities and Exchange Commission to delist Chinese companies from US exchanges if US regulators fail to review the company’s audit for three consecutive years.

Since March, the SEC has begun subpoenaing Alibaba and Certain other US-listed Chinese stocks For failure to comply with the new law.

Outlook for China stocks

If US-listed Chinese stocks, known as American depositary receipts, are forced to delist, shares could plunge by 13%, Goldman Sachs analysts estimate.

MSCI China could fall 6% in such a scenario, the report said. The index’s top holdings are Chinese stocks mostly listed in Hong Kong, eg Tencent and Alibaba.

A “no-delisting” scenario could send ADR and MSCI China 11% and 5% higher, respectively, the report said.

Read more about China from CNBC Pro

Chinese ride-hailing company Didi’s IPO in late June 2021 has seen a number of China-based companies list in the US following Beijing’s scrutiny. Regulators have since imposed restrictions on Chinese companies — especially those with at least 1 million users — seeking to list overseas.

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