Delisting from the US: Chinese firms prove popular over the counter

From ride-hailing app Didi Global to China Life Insurance Company and First High-School Education Group, a number of companies that delisted from US exchanges over 2022 have found alternative avenues to access US investors.

While hundreds of Chinese firms remain listed in the US, several big-name companies chose to voluntarily delist from the NYSE last year, including a number of large state-owned enterprises (SOEs), such as China Life Insurance Company. The Beijing-headquartered company, which is traded on the Shanghai and Hong Kong stock exchanges, is one of a handful to delist and find popularity on OTC Markets.

OTC Markets has shared details with IR Magazine of six Chinese companies that left the NYSE last year – Didi Global, Huaneng Power International, China Life Insurance Company, PetroChina Co, China Petroleum & Chemical Corp and First High-School Education Group – and that are trading well on OTC. Didi Global also delisted from Nasdaq in 2020 after raising $4 bn in the US.

Jason Paltrowitz, executive vice president of corporate services at OTC Markets Group, says ‘uncertainty around the US regulatory environment and concerns over the long-term viability of maintaining a primary listing on a US exchange, as well as changes to the Chinese regulatory environment’ are behind the shift.

He also points to a number of additional benefits to such a move: ‘It gives these companies an alternative to the cost and complexity of a US exchange listing.’ It further allows firms looking to grow their North American shareholder base to do so without having to ‘surrender’ their ‘primary market status’ to a major US exchange, he continues. This in turn allows ‘home markets to remain well populated with quality companies, offering opportunities for local investors while building a more robust secondary market and bridging the valuation gap in the US’.

Bringing foreign capital into Chinese markets

The appeal of OTC for these firms is largely around retail investment, says Hung Tran, non-resident senior fellow at the Atlantic Council GeoEconomics Center and former executive managing director at the Institute of International Finance, who adds that institutional money can easily buy and sell in Hong Kong or Shanghai, for example.

Writing on the issue in August last year, he pointed out that the ADRs issued by five of the SOEs that announced plans to delist from the NYSE at the time – China Life Insurance Company, PetroChina, China Petroleum & Chemical Corporation, Aluminum Corporation of China and Sinopec Shanghai Petrochemical Company – had raised $7.1 bn, which he described as ‘a tiny fraction of their combined market capitalization of $414 bn’.

He added that the number of Chinese ADRs traded on US stock exchanges is small – on average about 10 percent of the number of shares traded in China or Hong Kong – so the impact on liquidity would also be minimal.

Talking to IR Magazine, Tran says that while many of the voluntary delisting decisions were viewed through the lens of Chinese resistance to US auditing requirements, the moves are also about longer-terms plans for the Chinese market.

‘The key really for China – and from a Chinese perspective – is that those wanting to attract foreign capital into Chinese companies via share stocks and bonds prefer to do that by attracting capital into mainland China and the Chinese financial markets,’ he says. ‘This would also mean they are not subject to foreign countries’ rules and regulations.’

August 2022 saw an historic agreement reached between US and Chinese authorities, allowing the Public Company Accounting Oversight Board to inspect and investigate audit firms based in China and Hong Kong whose clients trade on US exchanges. That agreement ‘seems to be working well for the moment,’ says Tran.

He adds, however, that ‘if the Chinese authorities are becoming more sensitive about keeping control of the outflow of information, I would expect delistings from the US to continue, though perhaps not as spectacularly as in the past year or two.’

Expanding into Asia

OTC Markets says that outside of companies that chose to delist from US exchanges, the regulatory environment hasn’t prompted a broader move by Chinese firms to OTC. Still, the firm certainly sees growing potential in the wider Asia region, opening a Singapore office in 2022. 

‘We established a presence in Asia because we see significant opportunity in connecting Asia-based companies of all sizes to the North American shareholder base and ultimately bridging a valuation gap,’ says Paltrowitz. ‘Moreover, companies seeking to reach more investors can do so through OTC without having to surrender their ‘primary market status’ to major US exchanges like the NYSE or Nasdaq.’

OTC is not the only company in the IR sphere to see growing opportunity in the region: market intelligence firm AlphaSense announced its own Singapore expansion just last month. Noting that its broad client base includes ‘seven of the top 10 asset management firms in Asia-Pacific’, AlphaSense says the move is a response to ‘strong customer demand in the region’.

‘The Asia-Pacific region is one of the most dynamic and fast-growing economies in the world,’ said Kiva Kolstein, president and chief revenue officer of AlphaSense, in a statement published at the time the Singapore expansion was announced. The company says the new office – and its investment in further growing its presence in the region – will help provide existing and new customers in Singapore, Australia, Hong Kong and the wider Asia-Pacific region with greater levels of support.

None of the companies named as now trading on OTC Markets responded to a request for comment.