A rising number of Chinese companies listed on Wall Street are under pressure to be cut off from U.S. capital markets due to poor performance and non-compliance with listing standards.
Beijing-based MMTec, Inc. announced on Jan. 28 that it got notification from Nasdaq’s Listings Qualifications Department as its common stock had been trading below $1 for 30 consecutive business days. The company was granted 180 days to revert to the minimum bid price requirement.
China Finance Online Co. was delisted from Nasdaq on Jan. 21 as it was failing to meet the minimum $2.5 million shareholder equity requirement.
Nasdaq initially notified China Finance of the non-compliance in May 2021, and provided an extra grace period until Jan. 14 to comply.
Now, its shares can only be traded through over-the-counter (OTC), a market devoid of large financial institutions, substantial liquidity, and the ability for sellers to find a buyer fast without losing money.
FangDD Network, an online real estate marketplace, and BEST Inc., a logistics solution provider, are likely to be cut off from U.S. exchanges after their American depositary shares (ADS) closing prices dropped below $1 for 30 consecutive trading days.
An ADS is the U.S. dollar-denominated equity share of a foreign-based company available for purchase on an American stock exchange.
Currently, over 200 Chinese companies have their shares listed in the United States; around 170 of these shares fell in 2021, with 150 seeing a 40 percent or larger decline, and 40 experiencing an 80 percent plummet, reported investing.com, citing a Chinese analysis article.
For instance, Gaotu TechEdu’s shares were down 96 percent; TAL Education’s shares were down 95 percent; New Oriental was down 89 percent; iQiyi was down 76 percent; Pinduoduo was down 69 percent; and Alibaba was down 51 percent.
FangDD presented its third-quarter unaudited financial results in November, revealing a 58 percent decline in revenue and a $55 million net loss. Its share price has since been cut in half. The latest ADS closed at $0.33 per share.
The Nasdaq Golden Dragon China index—a weighted index of Chinese stocks publicly traded in the United States—fell by 43 percent in 2021, or 60 percent from its February peak. This rolling sell-off was in stark contrast to the Nasdaq Index, which gained 21 percent last year.
Following multiple massive falls in share prices, the market value of many Chinese companies has been wiped out significantly. According to the article, Chinese stocks trading on U.S. exchanges lost over $760 billion in total during 2021, nearly one-third of their market capitalization.
Educational services provider Puxin Limited received a second notice on Jan. 21 from the New York Stock Exchange for non-compliance with the continued listing standards because the average market capitalization was under the $50 million requirement over 30 trading days.
Puxin announced on Jan. 27 that each of its ADS represents 20 ordinary shares, a change that will take effect on Jan. 31.
The change is aimed to boost the company’s ADS price, and bring it into compliance with the NYSE’s trading price requirement, said Puxin’s statement.
Puxin posted the unaudited second-quarter financial statement in late December, citing a net loss of $213 million. Its most recent common stock price was only $0.2 a share.
The Securities and Exchange Commission finalized a rule in early December to implement a law that will allow the market regulator to ban foreign companies listed in the U.S. market from trading if for three consecutive years the companies’ auditors prevent the Public Company Accounting Oversight Board from inspecting completely.
Congress passed the law known as the “Holding Foreign Companies Accountable Act” in 2020 to ensure that foreign companies, especially Chinese ones, adhere to U.S. regulations.
Accounting scandals at Chinese companies listed on U.S. exchanges, such as Luckin Coffee Inc., have exposed the risks to investors faced by this oversight loophole.
“A company that uses audit firms based in countries with a weak rule of law, such as China, runs a greater risk of accounting problems,” reported The Wall Street Journal, citing a study co-authored by Jenna Burke, an accounting professor at the University of Colorado Denver.
Beijing doesn’t allow those inspections. The delisting could begin at the start of 2024.