China'S Three Major Telecom Operators Are Forced To Delist By NYSE, And Will Be Privatized Or Delisted In The Future

Three major domestic telecom operators were forced to delist in the United States.

On December 31, 2020, the New York Stock Exchange announced that it would start delisting procedures for China Mobile, China Telecom and China Unicom, and suspend trading from January 7 to January 11, 2021.

Affected by this news, the Hong Kong stock prices of the three telecom operators fluctuated to a certain extent after the new year's Day holiday on January 4. Three stocks opened low on the same day, with China Telecom once falling more than 5%, China Mobile's early decline remained stable at 4.5%, and China Unicom fell nearly 4%. In the afternoon, the three stocks have different degrees of callback. As of the end of January 4, Hong Kong shares of China Unicom even closed up 0.45%, while China Mobile and China Telecom fell 0.79% and 2.79% respectively.

"Due to the policy of the United States, the market has long expected delisting of the three major telecom operators. The stock price has been in a downward trend recently, and the impact on the stock price is not obvious today." Some analysts of securities companies in Hong Kong said that the business of the three major telecom operators is mainly concentrated in China, so the fundamentals will not be greatly affected. However, under the guidance of market sentiment, the decline of relevant Hong Kong stock prices will not end in a short time.

The symbolic meaning of delisting is greater than the practical significance

On November 12, 2020, the U.S. government issued an executive order prohibiting U.S. investors from investing in enterprises owned or controlled by the Chinese military. The move is aimed at preventing U.S. investment companies, pension funds and others from buying and selling shares in these Chinese companies. Affected by this policy, on December 4, FTSE Russell announced that it would remove the shares of eight Chinese companies from some of its index products. On December 15, MSCI decided to remove 10 Chinese companies from the global investable index portfolio. This time, the delisting of general shares of three domestic telecom operators is also a follow-up event triggered by relevant administrative orders.

In the view of China Securities Regulatory Commission, the three telecom operators have a huge user base and stable fundamentals, which have an important influence in the global telecom service industry. Its overall scale of ADR (American Depository Receipt) is small, with a total market value of less than 20 billion yuan, accounting for the largest proportion of the total equity of the three companies, accounting for only 2.2%, of which China Telecom only has about 800 million yuan and China Unicom only about 1.2 billion yuan. Lack of liquidity, small trading volume, lack of financing function, even if delisting, the direct impact on the company's development and market operation is quite limited.

Data show that China Mobile, China Unicom and China Telecom were listed on the New York Stock Exchange in 1997, 2000 and 2002 respectively. By the end of the first quarter of 2020, the number of ADRs of the three companies were 111.84 million, 5.55 million and 35.03 million, accounting for 2.73%, 0.69% and 1.14% of the total equity respectively.

Not only is ADR relatively small, chief analyst of Pacific Securities communications Li Hongtao pointed out that the overall trading volume of the three major telecom operators in the United States is not active. Taking December 31, 2020 as an example, the transaction value of China Mobile, China Telecom and China Unicom's US stocks were only 57 million yuan, 03.8 million yuan and 025.5 million yuan respectively.

In addition, according to Li Hongtao, at present, the main business of the three operators are in China, and their business presence in the U.S. market is extremely low, and China Mobile has not obtained the license to carry out telecom business in the United States. In terms of financing, the three major operators have not refinanced since they issued ADR in the United States. According to the latest financial reports of China Mobile, China Telecom and China Unicom, the cash and cash equivalents in hand of the three operators are 261.2 billion yuan, 21.9 billion yuan and 26.4 billion yuan, respectively, with sufficient funds. "Forced delisting" has little impact on the fundamentals of the three major operators, and its symbolic significance is greater than its practical significance. ".

However, in the eyes of the legal profession, although the three major operators are not active in US trading, investor protection under compulsory delisting is still crucial.

"I personally think that the three operators can bring a lawsuit to the court, asking NYSE to explain how they become military related enterprises, and require NYSE to properly handle the investor protection after delisting. Investors who buy American stocks from the three major operators can also file a lawsuit to ask the NYSE to compensate for the share price loss caused by compulsory delisting. " There are overseas law firm partners said.

Valuations are at historic lows

In any case, due to changes in US policy, the share prices of the three operators have been disturbed. From the perspective of Hong Kong stock price performance, China Telecom's stock price has fallen by more than 25% since November 12, 2020, while China Unicom and China Mobile have fallen by 19% and 18% respectively.

"In the future, the ADR and basic stocks of the three major operators may be exchanged and converted into Hong Kong shares, and the relevant funds may continue to flee, affecting their Hong Kong stock prices." Hong Kong Securities analysts said.

"At present, PE operators are generally around 8 times, and there is not much room for decline. Moreover, the fundamentals of operators are improving, the valuation is at a historical low, and there is a possibility of repair in the future. " Yan Guicheng, chief analyst of China Securities construction investment communication industry, said.

Li Hongtao also pointed out that the 5g construction effect of the three operators is remarkable. Up to now, there are more than 720000 5g base stations in China, 160 million 5g package users, accounting for 70% of the world, and 60% of the world's 5g mobile phone shipments. In 2021, operators will launch 5g mobile phones of 1000 yuan, and the number of 5g users will reach 400 million, and the accumulation of users is expected to reach the breaking point of new formats. At the same time, 5g users will effectively boost the overall average user income by 3-5 yuan. Operators are in the second transformation from traditional traffic management to digital ecology. It is estimated that operators will reduce the pressure of speeding up and reducing fees on the basis of maintaining 5g investment in 2021. The telecom revenue data will gradually improve and enter the growth channel, and the profit will turn positive and the growth rate is expected to exceed 5%.

As for the whereabouts of the three major operators after delisting, some senior investment bankers said that they would realize direct delisting through privatization. (privatization delisting) the overall cost is small, and the cost of auditing and disclosure in the United States is also saved. The three operators should not choose to delist and enter the U.S. counter market, trading will be more inactive. "

However, Huaxi Securities said that according to the most stringent supervision assumption of the US government, the three major telecom operators must complete the relevant circulation ADR repurchase before they can complete delisting. At that time, according to the number of ads represented by their respective ADRs and the price forecast of ADRs, China Mobile, China Telecom and China Unicom will need about US $640 million, US $1530000 and US $15.59 million to buy back all ADRs in circulation.

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