Untying the Knots: Simplifying Corporate Actions

Understanding the impact of corporate actions is necessary when contemplating the right investment strategy. This impact is driven by timely awareness, accuracy, and attention to detail. In this blog, S&P's Global Corporate Actions will discuss some of the most dominant corporate actions announced each month and the roles they take in the marketplace.

'Thank You, but we'll see ourselves out'

On August 12, 2022, five of the largest U.S.-listed Chinese state-owned companies announced their voluntary application to delist their American Depository Shares from the New York Stock Exchange. These companies include China Life Insurance (LFC), China Petroleum & Chemical Corporation or "Sinopec" (SNP), Sinopec Shanghai Petrochemical Company Limited (SHI), Aluminium Corporation of China (ACH) and PetroChina Company Limited (PTR).

First things first... Why?

For over a decade, there has been a continuous auditing dispute between China and United States regulators concerning the rules originating from the 2001 Enron accounting scandals in the US [1]. Stemming from these consequential regulations, US regulators are allowed the ability to inspect the work of firms worldwide that sign off on the finances of foreign companies listed on all U.S. stock exchanges.

In 2013, signs of positivity arose between the United States and China as they found agreeing ways to reinforce this auditing oversight law; nonetheless, it was later discovered that Chinese regulators never allowed full access to auditing documents on the basis of national security concerns [2]. Subsequently in late 2020, the U.S. Holding Foreign Companies Accountable Act became law, allowing the U.S. Securities and Exchange Commission (SEC) to delist Chinese companies from U.S. exchanges as soon as 2024 if regulators are unable to review company audits for three consecutive years [3].

Now, since March of 2022, the SEC has started to call out some 200 specific U.S.-listed Chinese companies - inclusive of the five previously mentioned- for failure to adhere to the law and failing to meet its auditing standards. Given this growing threat of involuntary delistings, some companies have made the proactive decision to voluntarily delist their securities, while others, including Alibaba (BABA) and Yum China Holdings Inc (YUMC) plan to convert their secondary listings in Hong Kong to primary listings, ultimately allowing their shares to continue trading on the Asian financial platform despite delisting from U.S. exchanges.

Interestingly enough, there has been no mention of the auditing dispute in separate statements by the numerous companies announcing their moves, many instead citing the administrative burden and costs of maintaining their New York listings as well as low U.S. trading volumes as the cause [4]. Additionally, the China Securities Regulatory Commission (CSRC) stated, "These companies have strictly complied with the rules and regulatory requirements of the U.S. capital market since their listing in the U.S. and made the delisting choice for their own business considerations [5]."

An overdue and very much needed agreement

Despite these statements and the voluntary delisting of certain companies from the NYSE, regulators from the two countries have been locked in negotiations this summer over the continued dispute. Most recently on August 26, the China Securities Regulatory Commission and U.S. Public Company Accounting Oversight Board (PCAOB) announced an agreement that, on paper, gives U.S. officials full access to audit work papers, audit personnel, and other information with no exceptions or loopholes.

The PCAOB described it as "the most detailed and prescriptive agreement the US regulator has ever reached with China [6]." The president of the New York Stock Exchange, Lynn Martin, called the agreement "an important development for the global economy and our U.S. capital markets, which remain pre-eminent largely because of their ability to balance investor protections and access to the world's leading companies [7]."

Since the audit agreement was reached, a Goldman Sachs analyst stated that the risk of Chinese stocks delisting from U.S. exchanges has nearly halved [8]. However, there remains uncertainty around implementation of the agreement as it only established a general framework. Whispers throughout the marketplace indicate that we have seemingly been here before given the almost 10-year history of negotiations failing to accomplish intended goals.

What's next?

It is expected that on-the-ground inspections will begin in Hong Kong by mid-September and will continue in mainland China. The PCAOB said it will make a determination in December 2022 on whether China was still obstructing access to audit information, and whether U.S.-listed Chinese companies might be headed for delisting [9].

As of today, Managed Corporate Actions has published the Delisting events on the Chinese companies listed in the U.S. that have already announced their decision of voluntarily delist their American Depository Receipts. Our Managed Corporate Actions Experts will continue to monitor future announcements made in relation to potential delistings or conversions of their primary listings to ensure the most accurate and reliable corporate actions data coverage.

Hostile or Inevitable?

In August 2022, the marketplace was hit with the shocking news that billionaire Gautam Adani's AMG Media Networks acquired a 29.18% stake in New Delhi Television (NDTV) through Vishvapradhan Commercial Private Limited (VCPL) and intends to acquire another 26% via an open offer.

Well, that was quick. But How?

Through a web of transactions more than a decade ago, NDTV borrowed 4 billion rupees from VCPL which, as part of the original loan agreement, granted VCPL warrants convertible at any time for a 29.18% stake in NDTV. AMG Media Networks subsequently acquired VCPL on August 23, 2022, and chose to exercise these warrants for the aforementioned stake in NDTV [10].

Now, under India's Takeover Regulations, acquisitions of 25% or more of the target company requires an open offer from the acquirer to purchase at least 26% more outstanding shares from existing shareholders, allowing them the opportunity to exit their positions at a fair price. So should the open offer succeed, Gautam Adani would increase his stake from a quarter to over half of the company [11].

Why would a billionaire industrialist want NDTV?

NDTV is an Indian commercial broadcasting television network founded in 1988. The company is in a single segment of television media where they maintain the NDTV Imagine channel for general entertainment, NDTV Good Times for lifestyle content, NDTV Convergence to synergize television, internet, and mobile, NDTV Labs for development of software and technology for captive use, and NGEN Media Services for the outsourcing of media postproduction services [12].

Adani has been aggressively expanding his empire which started with agri-trading and ports, diversifying his businesses into airports, data centers, cement, renewable energy, and finally, media. Given NDTV's established position as one of India's most popular news organizations, you don't have to look too hard to see the many advantages of gaining more exposure and influence in the nation's digital and broadcasting sector [13].

What's the market think?

As all media conglomerates around the world, such news has led to concerns among many that a change in ownership could undermine its editorial integrity, especially given the fact that the news organization has been far from sympathetic to the current regime. Some also claim that Adani could have a conflict of interest given the rumored connection to current Prime Minister Modi as a close friend. However, such speculation does not factor into the legality of the attempted takeover.

After the announcement of the takeover bid on August 23, shares of NDTV experienced huge volatility as it rose 5% to hit the upper circuit [14].

What's MCA reporting so far?

Currently, it is announced that the open offer will be available for tender on October 17, 2022. The open offer for acquiring 1.67 crore equity shares (1 crore = 10 million), for which a price of Rs 294 per share has been fixed, will tentatively close on November 1. If fully subscribed at a price of Rs 294 per share, the open offer will amount to Rs 492.81 crore [15].

MCA has set up the event as a Tender Offer - Offer to Purchase, which now stands in a Conditionally Approved status:

Now of course, with any hostile takeover, there will always be resistance met from the target company. Such pushback has been seen through:

1. The regulatory challenges coming from NDTV regarding the purchase of the 29.18% stake without the consent of its founders for a change in ownership. Under the loan agreement signed with VCPL, there is one clause that mentions that in order to buy more than 26% in NDTV, they must receive the promoter's consent; and
2. SEBI has restricted Radhika, Prannoy Roy and RRPR Holding from conducting any securities transactions for 2 years after they were found guilty of insider trading totaling 169.7 million rupees in 2020 which also means that no share transfers can be transferred to Adani Group.

The Annual General Meeting for NDTV has been scheduled to be held on September 27, 2022 and with Adani being a major shareholder, we shall await the results of the AGM at the end of the month [16]. Stay tuned!

'Operation London Bridge' and Corporate Actions

The sad news of Queen Elizabeth II's death on September 8 has taken the world by storm. Countries around the globe have shared their mourning and remembrance for the queen through both social, political, and economic measures.

However, amidst the sadness many investors could not help but ask a flurry of questions concerning the market and the UK's current position. Is paper money bearing the Queen's image still legal tender? How will the Exchange react with in-flight events? And many more.

Fortunately, our experts have answered a majority of these concerns in the country's Operation London Bridge protocol. In case you're unaware, Operation London Bridge is the U.K. government's plan for what will happen in the days after the death of Queen Elizabeth II [17].

First things first: The stock market will not close on the day the queen passes. However, the London Stock Exchange will close on the day of the Queen's funeral, as this day will be declared an official bank holiday. Although the official date for the funeral has not yet been declared, it is expected to be on September 19, based on the timelines supplied within Operation London Bridge [18].

Along with the UK, Australia announced that they too have declared September 22 a public holiday in memory of the Queen [19], as well as New Zealand dubbing September 26 their day of her remembrance [20].

Any effect on Corporate Actions?

Well, like any global public holiday, we can expect markets to close. Knowing these dates in advance is always the most desirable method considering issuers and depositories take these dates into consideration while planning different offers, paying dividends, downstream processing protocols, and much more. However, when situations arise that call for national acknowledgement such as the Queen of England's passing, the world will need to accommodate. And so be it.

The MCA Team will collect all in-flight events either going Ex- or Effective and adjust these new critical dates immediately for full awareness and creating ample time for processers to divvy up shares and positions accordingly.

The Road to Recovery

Quarterly Dividend & Share Repurchase Program Suspension

On February 2, 2016 General Motors (GM) declared a first quarter dividend on its common stock of 38 cents a share. This was an increase of 2 cents from the 36 cent quarterly dividend paid the year prior. GM managed to keep up with these payments till the beginning of 2020 when in mid-March the company saw the doors of its plants close as Covid-19 quickly spread across the US. On April 27, 2020, the Company took additional steps to sure-up its balance sheet and became one of 190 US companies who suspended their dividend and share repurchase program [21].

Prior to the suspension, the last dividend paid was on March 20, 2020 to holders of record as of the close of business on March 6.

"We continue to enhance our liquidity to help navigate the uncertainties in the global market created by this pandemic," GM Chief Financial Officer Dhivya Suryadevara said statement. "Fortifying our cash position and strengthening our balance sheet will position the company to create value for all our stakeholders through this cycle [22]."

Putting capital back in the hands of holders

With threats of a recession hovering over the economy, the decision to bring back dividends has become even more difficult for companies. Save them for a rainy day, pay down debt or return capital to shareholders?

Well, fast forward to August 19, 2022, and it becomes clear that GM is ready to return capital to shareholders. The company announced its board of directors authorized the reinstatement of the quarterly dividend on its common stock at a rate of 9 cents a share. The new rate represents a roughly 76% reduction from the suspended dividend of 38 cents a share. The first dividend was paid on September 15, to holders of record as of the close of business on August 31 [23].

The company also announced it would resume and increase its share repurchase program from $3.3 billion to $5 billion. The company's buyback of its shares at market price allow it retain ownership as well as reduce the number of shares outstanding, thereby increasing the remaining shareholders ownership stake. The company has not yet specified a timeframe for any repurchases.

Keeping Track: Historical Data & Reporting Timeliness

S&P's Global Corporate Action service has been there from the beginning, reporting on the Company's dividend distributions since its first back in March 2014. With the announcement of GM's recent distribution on August 19, S&P had the corresponding event created and in an approved status by the following day [24].

Our team will continue to track these previously suspended dividend companies as news arise on company health, future plans, etc. and will continue to keep the marketplace updated.

Interested in more? Please find:

Global Corporate Actions' June 2022 Blog Post

Global Corporate Actions' April 2022 Blog Post

Global Corporate Actions' March 2022 Blog Post

Global Corporate Actions' February 2022 Blog Post

Global Corporate Actions' January 2022 Blog Post

Global Corporate Action's November 2021 Blog Post

Global Corporate Action's October 2021 Blog Post

Global Corporate Action's September 2021 Blog Post

Global Corporate Action's August 2021 Blog Post

Global Corporate Action's July 2021 Blog Post

Global Corporate Action's June 2021 Blog Post

Posted 31 August 2022 by Christine Harrington, Product Associate Director, Corporate Actions, S&P Global Market Intelligence

S&P Global provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.