Credit: EV | Photo: Andrew Kelly

Goldman Sachs says the delisting risk of U.S.-listed China stocks plunged from 95% to 50%

Written by Cláudio Afonso | info@claudio-afonso.com | LinkedIn | Twitter

Goldman Sachs released a new note on Monday saying the delisting fear of the U.S.-listed Chinese stocks have fallen from 95% in mid March to 50% after the preliminary deal reached last Friday.

The firm reiterated its overweight rating on tech, media and telecom sector although it still sees “uncertainty around US-China tensions across key strategic domains”.

“Although the audit inspection agreement may reduce the risks of broad-based delisting, it doesn’t alter our view that the uncertainty around US-China tensions across key strategic domains — trade, technology, capital markets, and geopolitics — would continue to motivate Chinese ADRs to diversify their listing risk away from the U.S.”.

U.S. PCAOB said in a statement it plans to be on the ground by mid-September to test the preliminary agreement before the determination scheduled for December.

Last Friday, China Securities Regulatory Commission said it entered an audit oversight cooperation agreement with the U.S. Public Company Accounting Oversight Board (PACOB) and the Ministry of Finance of the People’s Republic of China.

The agreement signed last Friday establishes “a cooperation framework in line with the authorities’ respective laws and regulatory mandates” and “sets out specific arrangements on conducting inspections and investigations by both sides over relevant audit firms within the jurisdiction of both sides,” according to PCAOB.

Earlier in the week, WSJ had reported that talks between the U.S. and China over audit-paper access could see an important step ahead of the agreement between the countries which would avoid the delisting of over 200 U.S.-listed Chinese companies.

Some of the biggest names on the list are PinDuoDuo, JD.com, Alibaba, NIO, Netease, XPeng, and Baidu. In early May, US SEC had updated the Holding Foreign Companies Accountable Act (HFCAA) list adding NIOXPeng, and many other Chinese companies.

According to the law approved in late 2020, the companies on the list used an auditor “whose working paper cannot be inspected or investigated completely by the PCAOB”. Previously, on April 22, also the Chinese automaker LI Auto was added to the HFCAA list.

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On August 1, during an interview at Bloomberg’s Washington office, U.S.-PCAOB chair Erica Williams said the U.S.-China talks over audit-paper access are ongoing reiterating the need for complete access.

The chair of the Public Company Accounting Oversight Board said “We need to have complete access” [to the audit papers] adding that PCAOB has teams ‘ready to go” to the country if an agreement is reached, meaning “no loopholes”.

Recently, Bloomberg reported U.S. Public Company Accounting Oversight Board (PCAOB) and the China Securities Regulatory Commission and the Ministry of Finance held calls with the negotiations “reaching a critical point”. Bloomberg added that the “redactions in auditors’ documents are a key barrier” to reaching a deal.

In early May, US SEC updated the Holding Foreign Companies Accountable Act (HFCAA) list adding NIO, XPeng while the PHEV maker LI Auto was added in late April. When both EV makers were added to the list, NIO answered by saying it will “continue to comply with applicable laws and regulations in both China and the United States” and also “strive to maintain its listing status on both the NYSE and the HKEX in compliance with applicable listing rules”.

Written by Cláudio Afonso | info@claudio-afonso.com | LinkedIn | Twitter

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