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The New York Stock Exchange plans to delist three state-owned Chinese telecommunications companies from U.S. stock exchanges by Jan. 11, following President Donald Trump’s November executive order prohibiting U.S. investment in companies that Washington says support the Chinese military.
American depositary shares (ADSs) in the three Chinese telecom companies—China Telecom, China Unicom Hong Kong, and China Mobile—fell after news of the planned delisting broke Friday. But the move won’t block Americans from owning shares in any of the three companies. U.S. investors can keep hold of their stakes by exchanging their ADS holdings for shares listed in Hong Kong, where all three dual-listed telecom firms trade on the Hong Kong stock exchange.
In three separate filings with market operator Hong Kong Exchanges and Clearing (HKEX) on Monday, the three telecom companies said that investors can deposit their ADS holdings with the Bank of New York Mellon and receive Hong Kong shares in return. Each company also said it had yet to receive confirmation about its imminent delisting from the NYSE.
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The share swap isn’t a straight one-for-one exchange. China Mobile says one ADS is worth five of its Hong Kong shares; China Unicom is exchanging one ADS for 10 Hong Kong shares; and China Telecom is swapping one ADS for 1,000 Hong Kong H-shares. However, the monetary value of the shareholder’s stock should remain roughly equal before and after the swap.
Two of the three companies didn’t respond to Fortune’s request for comment; China Telecom directed Fortune to the company’s statement published by HKEX.
Trump’s executive order was the latest maneuver from Washington against Chinese companies listed on U.S. exchanges. Legislators introduced multiple bills in 2020 calling for the Securities and Exchange Commission to delist foreign companies that fail to disclose proper auditing documents. Chinese companies often fail to comply with U.S. audit standards because Beijing blocks the release of certain information on national security grounds.
Following the executive order, the Treasury Department released a list of 35 Chinese companies that it calls “Communist Chinese Military Companies.” Not all of the companies are listed in the U.S., however; some are not listed at all. Smartphone and telecom equipment maker Huawei Technologies, for example, is on the list but is a privately held company. (Huawei says it is employee-owned.)
If a delisted company isn’t listed elsewhere in the world, U.S. shareholders can hang on to their shares and likely trade them on an over-the-counter (OTC) exchange. OTC stocks still need to be registered with the SEC, but requirements are less stringent than for companies listing on major markets like the NYSE. But since OTC exchanges are less regulated, investors tend to sell shares ahead of a delisting rather than enter this high-risk world. The selloff forces stock prices down, stripping value from the stock of investors who do hold on to their shares.
The China Securities Regulatory Commission (CSRC) has denounced the planned delistings as “politically motivated” but added that even if the three telecom firms are delisted in the U.S., the impact on the companies will be “rather limited.” The market value of each company’s U.S.-listed shares is only around 2% of their total equity, the CSRC says.
The CSRC also said the action risks undermining the U.S.’s leading position in global capital markets. So far, the clampdown has been a boon for Hong Kong as a number of U.S.-listed Chinese companies launched secondary listings on the Hong Kong exchange to hedge against getting kicked off the U.S. bourse.
Update: Late Monday, the NYSE announced it was scrapping plans to delist the three Chinese telecom companies after “consultation with relevant regulatory authorities.”