US Markets: Li Auto, Luckin Coffee Added to Chinese Stocks Delisting Candidates

 

Electric vehicle (EV) maker Li Auto, beverage retailer Luckin Coffee and question-and-answer website Zhihu are among 17 Chinese companies added by the US Securities and Exchange Commission (SEC) to its list of firms liable for delisting under an auditing oversight law.

The additions come as China’s securities watchdog said it has been in regular talks with US regulators over the ongoing Chinese stocks delisting audit stand-off and expects a deal soon.

Zhihu shares tumbled more than 22.2% on Friday as it debuted its primary dual listing on the Hong Kong stock exchange. The Chinese website, similar to Quora, raised $106 million by pricing its shares at HK$32.06 each.

Homebuying platform Ke Holdings was also added under the Holding Foreign Companies Accountable Act (HFCAA), passed in 2020.

“Ke Holdings is aware of fact that it was identified by the [SEC] under HFCAA on April 21, 2022,” the company said in a stock exchange filing. “[The company] will continue to comply with applicable laws and regulations in both China and the US.”

Ke’s New York-listed shares fell more than 7.7% on Thursday, while Luckin Coffee stock dropped 5.7%.

Li Auto Stock Falls by 4.5%

Li Auto stock shed 4.5% in Hong Kong on Friday. “We have been actively seeking a solution as a responsible company to our investors and are actively cooperating with audit paper-related efforts in accordance with domestic and international regulatory requirements,” Li Auto said in a statement.

The HFCAA requires the SEC to identify public companies that have retained a registered public accounting firm to issue an audit report where the firm has a branch or office located outside the US and the Public Company Accounting Oversight Board (PCAOB) “has determined that it is unable to inspect or investigate completely because of a position taken by an authority in the foreign jurisdiction”.

The HFCAA specifically requires the SEC to delist any company that does not cooperate with PCAOB audit inspection requests. Dozens of Chinese companies have been placed on the list, and face possible delisting.

“Given that the proposal to accelerate the trading prohibition appears to have bipartisan support [in the US Congress], it is likely that legislation will be enacted and, as such, trading prohibitions could begin to apply in 2023,” Carl Valenstein, a partner at the Morgan Lewis law firm in Boston, said.

The other Chinese companies added are AMTD Idea, Aurora Mobile, Best, BeyondSpring, CBAK Energy Technology, China Foods Holdings, Entrepreneur Universe Bright Group, JRSIS Health Care, Lovarra, Nova Lifestyle, Scientific Energy, Value Exchange International and ZW Data Action Technologies,

 

• George Russell

 

 

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