LIVE MARKETS-Investors' guide on how to proceed if Chinese shares vanish from America's stock markets

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INVESTORS' GUIDE ON HOW TO PROCEED IF CHINESE SHARES VANISH FROM AMERICA'S STOCK MARKETS

Amid the rising Sino-U.S. trade tensions, analysts at Goldman Sachs (GS) have penned down how to proceed if the Trump administration decides to outlaw Chinese companies from listing on U.S. markets, estimating about a 66% chance of it happening.

Goldman Sachs estimates that U.S. institutional investors currently own around $830 billion of Chinese stocks across both domestic and American listings and retail investors hold about $370 billion in Chinese ADRs.

The Wall Street lender expects companies with relatively high retail ownership to face stronger selling pressures if ADRs are forced to be de-listed.

A de-listing can be broadly categorized into categories: voluntary and involuntary. A voluntary de-listing is usually a lengthier process although GS estimates that this type of transaction is typically supportive to share prices before the de-listing date.

De-registration and privatization are the major options in case of a voluntary de-listing.

If an involuntary de-listing is announced, GS expects proceedings to move relatively faster and share prices could come under pressure.

There are four reasons which could trigger a forced de-listing under existing laws in the United States: a case of accounting fraud, non-compliance with the Holding Foreign Companies Accountable Act, U.S. sanctions and violation of Chinese regulations.

If ADRs are de-listed, investors in companies with a dual listing (example, both in U.S. and Hong Kong) can fully convert their American-listed shares to Hong Kong ones, without any capital account restrictions.

Based on historical precedents, investors can also choose to sell their U.S.-listed shares 10 days after the de-listing notice is filed with the SEC at prevailing market prices before the security's last trading day.

Investors can also choose to trade the shares in the over-the-counter market, though under existing laws, some companies are prohibited from doing so.

If investors take no action before and after six months of the de-listing date, the depositary will start the sale of the unreturned American securities at the market price, and pay the net cash proceeds to the ADR shareholders.

(Shashwat Chauhan)

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