The US Securities and Exchange Commission (SEC) has added four Chinese internet groups to its list of companies liable for delisting under an auditing oversight law.
Baidu, Futu Holdings, iQiyi and Weibo are among the latest names identified under the Holding Foreign Companies Accountable Act (HFCAA), according to a March 30 statement by the US stock regulator.
Two US companies – Nocera and CASI Pharmaceuticals – are also on the list.
Baidu’s Hong Kong traded shares fell more than 4% on Thursday, while Futu’s US stock fell more than 3% in after hours trading, as did iQiyi’s American depositary receipts. Weibo shares fell 1.7% in Hong Kong as well.
CSRC Says Delistings Depend on Both Sides
China’s securities regulator said on Thursday both China and the US have a willingness to solve their audit disputes, and the outcome depends on the wisdom of both parties.
CSRC chairman Yi Huiman and his counterpart, US Securities and Exchange Commission chair Gary Gensler, have held three virtual meetings since last August to discuss a resolution for the legacy issues in coordinated audits of companies.
China has also held multiple rounds of frank, professional and productive meetings with the Public Company Accounting Oversight Board, a CSRC statement said.
The process is smooth in general and will continue. Both sides are willing to solve the disagreements and problems. “But the outcome will depend on wisdom and the original will of both sides,” it said.
The statement came after US SEC chair Gary Gensler pushed back speculation of an imminent deal to be reached between the two sides that would avoid trading suspension of around 200 Chinese companies listed in the US.
The long-running Sino-US audit stand-off has put hundreds of billions of dollars of US investments in Chinese companies at stake.
The 2002 Sarbanes-Oxley Act requires all companies – US-based or not – to comply with specific accounting rules. Every country has since either complied or its companies have voluntarily delisted. Only China has ignored the rule. After decades of negotiations which yielded no results, US Congress passed the Holding Foreign Companies Act in 2021, which specifically requires the SEC to delist any company that does not cooperate with Public Companies Accounting Oversight Board (PCAOB) audit inspection requests. Previously, the SEC could choose to act or not.
Now, any company that does not comply with audit requests faces expulsion from the stock exchange after three consecutive years of non-compliance.
Five Other Firms Named in March
Earlier this month, the SEC identified five other Chinese companies that will be delisted by 2024 if they do not provide access to audit documents, according to a March 8 post on its official website.
They were fast-food giant Yum China, biotech groups BeiGene, Zai Lab and HutchMed, and technology company ACM Research. The announcement triggered a sell-off in their Chinese stocks.
The SEC said it was trying “solely to identify issuers that have used PCAOB-identified public accounting firms to audit their financial statements”.
Issuers provisionally identified will have 15 business days to contact the SEC if they believe they have been incorrectly identified and are not subject to the requirements under the HFCAA until they have been conclusively identified.
In December, the US SEC finalised rules to delist Chinese companies under the HFCAA, and said it had identified 273 companies that were at risk.
By Thursday, 11 US-listed Chinese companies had been identified by the US regulator as carrying risks under the Act.
“The US side has made a case that it is treating everybody equally with its Holding Foreign Companies Accountable Act. And it is becoming increasingly clear that China is unlikely to ask for an exception,” said Shen Meng, a director at Beijing-based boutique investment bank Chanson & Co.
- By George Russell with Reuters