What are ADRs and why a stampede of Chinese companies is announcing their exclusion to the US

Five major Chinese companies announced today that they intend to withdraw their American Depositary Receipts (ADRs) from the New York Stock Exchange, according to the official Global Times newspaper.

After the market closed on August 12 in the Asian country, the companies China Life Insurance, Sinopec, PetroChina, Chalco and Shanghai Petrochemical issued successive announcements to exclude their companies from the ADR list of the New York market.

ADRs are financial instruments required by foreign entities to register their shares on the US stock market.

The term American Depository Receipt (ADR) refers to a negotiable certificate issued by a US depositary bank that represents the shares of a foreign company. The ADR trades on the US stock markets as any domestic stock would.

ADRs offer US investors a way to buy shares in foreign companies that are otherwise unavailable. Foreign companies also benefit, as ADRs allow them to attract US investors and capital without the hassle and expense of going public.

But this option is less and less attractive. The tides of the global capital markets have turned for Chinese tech companies. For years they have focused on the West. Since the late 1990s, China’s most innovative companies have found their way into the US markets, through ADRs or going public in that market, a trend that is now slowly coming to an end.

Now, these firms prefer to stay ‘at home’ and are even ending their listing through ADRs, taking advantage of the fact that Hong Kong and Shanghai have been reviewing their legal framework for listing in an attempt to attract some of the Chinese technology companies. largest and most well-known listed abroad.

Other reasons

According to the announcement, companies have in principle the same reasons for delisting, notably that the trading volume of the company’s ADRs is limited compared to the overall trading volume of common shares in the foreign company (H shares)

Similarly, the administrative cost of maintaining the listing of the depositary shares on the New York Stock Exchange and the regular reporting related to these depositary shares and their corresponding H-shares is relatively high.

The China Securities Market Regulatory Commission, in this regard, assured that “listing and delisting are the norm in the capital market”, in addition to adding that “it respects the decisions made by companies based on their conditions real”.