Delisting from U.S. bourses poses negligible long-run risks to Chinese companies, says expert
The delisting of Chinese companies' shares from U.S. stock exchanges poses negligible risks to relevant companies in the long run but harms U.S. investors and investment banks, said a senior investment strategist.
Judging from the performance of state-owned enterprises that were delisted due to specific sanctions, "there are negligible long-term risks associated with delisting," said Mehran Nakhjavani, partner of emerging markets with MRB Partners.
Three Chinese telecom companies and offshore oil company CNOOC Ltd. are undergoing the process of delisting from the New York Stock Exchange due to an executive order issued by the U.S. federal government in November, 2020.
American depositary shares of the Chinese companies may underperform prior to delisting, but subsequently their parent companies' listing in Hong Kong or elsewhere will pick up plenty of investor interest, said Nakhjavani on Tuesday.
"In other words, there is enough arbitrage activity to ensure that price dislocations associated with delisting are only temporary," Nakhjavani told Xinhua.
Chinese companies listed on U.S. stock exchanges also face the risk of delisting in the next few years due to regulatory issues arising from the Holding Foreign Companies Accountable Act (HFCAA), which was signed into law in December, 2020.
"Indeed, it is possible to make the argument that the principal victims of delisting are U.S. investors and investment banks, rather than the Chinese companies who are the object of the sanctions," added Nakhjavani.
Chinese companies continue to float their shares on U.S. bourses in the past six months so as to raise money and let venture capital exit their investment, according to experts.
The initial public offering (IPO) process is primarily driven by the need to provide an exit strategy for venture capital that has supported the startups, said Nakhjavani.
"There are still companies which need capital and have prepared to get listed in the past years, they will continue to pursue," said Linda Bergkamp with corporate communications firm Christensen Investor Relations.
There were 248 Chinese companies listed on the Nasdaq, New York Stock Exchange and NYSE American as of early May up from 217 ones in early October, 2020, according to a report by U.S.-China Economic and Security Review Commission.