Chinese companies non compliant with US audit standards will be delisted: SEC

Shares of Yum China along with four other Chinese companies have fallen sharply after they were ensnared in an audit dispute between China and the United States.

In a statement Yum China Holdings, the owner of KFC, Taco Bell and Pizza Hut restaurants in China, said it may have to delist from the New York stock exchange by 2024 after U.S. regulators said the company had not provided documents for audit purposes.

US regulators have demanded that foreign companies listed on its stock exchanges should be provided all documents related to the books of accounts; China has however bared foreign inspection of working papers from local accounting firms over a long-simmering auditing dispute that places hundreds of billions of dollars of U.S. investments at stake.

In December 2021, the U.S. Securities Exchange Commission (SEC) said it had identified 273 companies that were at risk, without disclosing their names.

However, names of some companies, including Chinese ones, have been identified including BeiGene Ltd, ACM Research Inc, Zai Lab Limited and HUTCHMED (China) Limited.

In what would appear to be an attempt to ease investor panic, China’s securities regulator stated, it was confident it would reach an agreement with its U.S. counterparts.

“We always adhere to the spirit of openness and cooperation, and are willing to resolve the issue … through regulatory cooperation,” said the China Securities Regulatory Commission (CSRC) in a statement.

“The next step for both parties is to continue to advance in depth on more details,” said a source.

Linus Yip, chief strategist at First Shanghai Group, said the SEC move was not totally unexpected, but investors’ reaction was understandable given heightened geopolitical tensions.

“The atmosphere now is bad. We have Sino-U.S. frictions, the Ukraine crisis, prospects of rate hikes and more,” said Yip. “So it’s natural for investors to look on the dark side.”

According to Bruce Pang, an analyst at China Renaissance, the main reason for naming the five Chinese companies by the SEC was that they were the first few companies which have already filed their 2021 annual reports.

“However, this list has returned delisting risk to the forefront, as regulators look to proceed step by step with stricter requirements on disclosure and compliance.”

The SEC has given these companies until March 29 to submit evidence to dispute their identification.



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