NYSE reverses again with plan to delist China telecom firms

The New York Stock Exchange is proceeding with a plan to delist three major Chinese telecommunications firms, its second about-face this week, after U.S. Treasury Secretary Steven Mnuchin disagreed with its shock decision to give the companies a reprieve.

The pivot comes after the exchange's earlier move caught U.S. officials off guard. The exasperation reached the highest levels of the administration of President Donald Trump, who signed an executive order in November requiring investors to pull out of Chinese businesses deemed a threat to U.S. national security. The NYSE's back-and-forth moves have also sown deep confusion in global financial markets.

The decision is based on "new specific guidance received on Jan. 5, 2021, that the Department of Treasury's Office of Foreign Assets Control provided to the NYSE," the exchange said in a statement Wednesday. "The issuers have a right to a review of this determination." An NYSE representative declined to elaborate on the decision.

In Hong Kong trading Thursday, China Telecom Corp. shares dropped 9.4%, the most since 2008, while China Mobile Ltd. had its worst day since 2015 in falling 7.2%. They respectively closed at their lowest since 2008 and 2006. China Unicom Hong Kong Ltd. declined 11%.

The new guidance referenced by the NYSE was published on the Treasury Department's website shortly after the delisting announcement. The agency's Office of Foreign Assets Control, in a frequently asked questions posting, explicitly listed the three Chinese telecom firms as being on the list of prohibited companies. A spokesperson for the Treasury Department declined to comment.

Investors, exchanges and indexes had been clamoring for more details on the executive order after the Treasury Department took six weeks to issue additional guidance.

"It's clear OFAC is trying to provide market clarity around the delisting situation we've been witnessing, for the avoidance of all doubt on why certain decisions may be made," said Daniel Tannebaum, head of sanctions at Oliver Wyman in New York. "You certainly have seen companies named in prior FAQs before, but without the type of kerfuffle we've witnessed this week."

This is "essentially OFAC putting out a FAQ to justify the actions taken," he said.

Mr. Mnuchin entered the fray Tuesday, calling NYSE Group President Stacey Cunningham to express his displeasure with the decision to let the three firms keep trading on the Big Board, according to people familiar with the matter.

The NYSE first announced it would delist the companies on New Year's Eve, before changing course four days later. The initial decision was meant to comply with Mr. Trump's order, but the exchange reversed itself after questions emerged over whether the companies were actually banned, according to people familiar with the matter. The Treasury provided specific guidance directly to the NYSE on Tuesday night, paving the way for the latest delisting announcement, one of the people said.

The trio of companies lost more than $30 billion in market value in the final weeks of 2020 as investors pulled back following Mr. Trump's order, then shed as much as $12 billion more as their American depositary receipts tumbled Monday on the NYSE's decision to delist them. Prices climbed Tuesday after the NYSE canceled the delisting, and then softened again after Bloomberg reported that the exchange may proceed after all.

"It's odd for the NYSE to get this so wrong," said Bloomberg Intelligence analyst Larry Tabb. "Their marketing and public relations team has historically been one of the best. It's bad enough to do a 180 on this within a week, but to go 360 degrees on such a major move so quickly means that they either got this terribly wrong, or there was significant outside pressure driving these decisions."

The order bans trading in the affected securities starting Jan. 11. If President-elect Joe Biden leaves Mr. Trump's executive order in place, U.S. investment firms and pension funds would be required to sell their holdings in companies linked to the Chinese military by Nov. 11. And if the U.S. determines additional companies have military ties in the future, American investors will be given 60 days from that determination to divest.

Since the start of the coronavirus pandemic, Mr. Trump's administration has ramped up its attacks on China, imposing sanctions over human-rights abuses and the nation's crackdown on Hong Kong. The U.S. also has sought to sever economic links and deny Chinese firms access to American capital.

Hard-liners in the administration have warned investors for months that Chinese companies could be delisted from U.S. exchanges. As far back as August, a senior State Department official, Keith Krach, wrote a letter warning universities to divest from Chinese firms ahead of possible delistings.