Jhe is not an alarmist. Shares of Nio (NYSE: NIO) surged Friday morning as investors took note of the company’s 20F annual report filed today and some good news from China, Nio’s home market.
Yet when I dug deeper into the annual report, a line buried under the many risk factors Nio listed made me sit up and take notice. It’s the kind of thing that could send stocks plunging if it were to become a reality.
Investors may be aware that foreign stocks, especially Chinese stocks, are at risk of delisting from US stock exchanges if the underlying companies fail to comply with audit rules set by the United States Securities and Exchange Commission (SEC). United States under the Holding Foreign Companies Accountable Act (HFCAA).
Under the law, foreign companies whose audit reports have not been available to the Public Company Accounting Oversight Board (PCAOB) for inspection for three years in a row will be asked to delist their shares in the United States. The SEC recently began identifying and naming these companies publicly. As one might guess, each time such a list of companies (or issuers) identified by a commission is published, the stock prices of the companies mentioned therein have fallen.
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Coming back to Nio, here’s the line from its annual report that made me nervous: “Therefore, we expect to be identified as a ‘Commission-Identified Issuer’ shortly after the filing of this annual report on the 20F form.”
Yes, you read that right.
Nio disclosed that on December 16, 2021, its auditor was identified as one of the registered accounting firms that the PCAOB was unable to inspect. Nio therefore expects to find his name on one of the SEC’s infamous lists soon.
If that happens, it could be a blow to investor sentiment in Nio, as the SEC is wary that foreign companies that don’t allow their financial reports to be inspected could potentially hide material information and mislead. mistake investors in the United States.
But even if Nio makes it onto the list, he will have plenty of time to challenge his inclusion and possibly comply with the HFCAA. Additionally, simply being named by the SEC does not in any way mean that Nio’s stock will be delisted.
Still, you might already want to brace yourself for more volatility in Nio shares based on what the company just revealed in its annual report.
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Neha Chamaria has no position in the stocks mentioned. The Motley Fool holds positions and recommends Nio Inc. The Motley Fool has a Disclosure Policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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