JD, Nio, Pinduoduo Among 80 Chinese Companies Identified By SEC For Potential Delisting: What Investors Should Know

Zinger Key Points
  • SEC widened its regulatory crackdown on U.S.-listed Chinese companies for not disclosing audit reports
  • Big tech companies such as JD.com, Bilibili and Pinduoduo and EV companies Nio and XPeng have been called out by the SEC this time around

The SEC continued to crack the regulatory whip on U.S.-listed Chinese companies for non-compliance with audit requirements necessitated by the "Holding Foreign Companies Accountable Act."

What Happened: The SEC on Wednesday put out a provisional list of 80 Chinese companies, expanding its previously issued lists. Those companies that have been identified have up to 15 business days to contact the federal agency to provide evidence to prove otherwise.

Some of the renowned companies added to the list afresh are e-commerce retailer JD.com, Inc. JD, Bilibili Inc. BILI, Pinduoduo Inc. PDD, NetEase, Inc. NTES, XPeng, Inc. XPEV and Nio, Inc. NIO

The SEC has conclusively identified 23 companies, including Baidu, Inc. BIDU, Sohu.com Limited. SOHU and iQIYI, Inc.IQ, for having violated the audit norms.

Related Link: The Analyst Who Called The Sell-Off Of Alibaba, JD Now Has This To Say About Chinese Stocks

Why It's Important: The HFCAA, which was passed in December 2020, requires Chinese companies listed on the U.S. exchanges to allow the U.S. Public Company Accounting Oversight Board to inspect their auditing reports. If the PCAOB isn't given access to audit reports for three consecutive years, these companies would be delisted from the exchanges.

This suggests that if the SEC includes the companies in the confirmed list and if they are found non-compliant, they could face potential delisting as early as 2024.

Delisting risks have led to steep sell-offs in Chinese stocks and continue to remain an overhang. Taking cognizance of the situation, China has shown a willingness to soften its stance. In April, Chinese regulators reportedly asked some companies, including Alibaba Group Holding, Inc. BABA, Baidu and JD.com to get ready for additional audit disclosures.

China is reportedly working toward giving the U.S. full access to the auditing reports of a majority of Chinese companies by the middle of the year, Bloomberg reported in early April.

Even as China's regulators and domestic companies are working on resolving the issue, most big names have hedged against the delisting risk by pursuing either dual primary or secondary listings in Hong Kong.

Following the most recent SEC move, JD.com released a statement saying it has been actively exploring possible solutions.

"The company will continue to comply with applicable laws and regulations in both China and the United States, and strive to maintain its listing status on both Nasdaq and the Hong Kong Stock Exchange," it added.

Nio said it has been "actively exploring possible solutions to protect the interest of its stakeholders" and pointed to the secondary listing in Hong Kong in March. 

"NIO will continue to comply with applicable laws and regulations in both China and the United States, and strive to maintain its listing status on both the NYSE and the HKEX in compliance with applicable listing rules," the electric vehicle maker said.

Hong Kong-listed shares of the identified companies reacted to the news with northward moves, apparently due to the fact that the development has already been digested by investors.

Related Link: Chinese Analyst Who Highlighted Delisting Risks For US-Listed Companies Like Alibaba Suddenly Leaves State-Owned Brokerage

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