RIDE-HAILING APP Didi Chuxing incurred the wrath of regulators when it pushed ahead with its $4.4 billion initial public offering (IPO) in New York in June in the face of their advice not to, even as others fell into line as China prepared to crack down on its tech companies.
A series of retaliatory measures rapidly followed, including online app stores being ordered not to offer Didi’s app because it violated regulations on collecting user data and the company being banned from signing up new users. The Cyberspace Administration of China (CAC) launched an investigation of the firm on the grounds of national security and public interest.
Now the company has announced, abruptly, that it will delist its Didi Global American Depositary Receipts (ADRs) from the New York Stock Exchange and switch to a Hong Kong share listing. Existing shareholders will be able to convert their ADRs into freely tradeable shares on the new bourse. This implies the Hong Kong listing will come before the New York delisting is finalised, probably sometime between spring and summer next year.
Japan’s SoftBank is Didi’s largest shareholder with a stake of some 20%. Tencent and US venture capitalists Sequoia also have significant holdings. All will be covered by the six-month lock-up following the IPO, which will end at the end of December. Big shareholders may well consider the financial hit they will take on their holdings to be worth it if delisting draws a line under Didi’s punishment by authorities.
The lock-up will also cover company executives who face significant losses on their holdings. Didi’s shares have fallen 40% since their listing as the measures taken against them, which also included new protections for the millions of ride-hailing drivers, took their financial toll. The company also abandoned plans to expand in the EU and the United Kingdom.
The Didi IPO was the biggest by a Chinese company since Alibaba in 2014, but there has been growing pressure from the United States to deny Chinese firms access to US capital markets.
On Thursday, the US Securities and Exchange Commission said it had finalised rules under legislation the US Congress passed last year that put US-listed foreign companies at risk of delisting if their auditors do not comply with requests for information from US regulators.
Driving capital market decoupling from the other end, Chinese regulators need to approve any plans by a Chinese company to list overseas and are making the approval process more stringent. Particular scrutiny is being applied to any company that holds data that Beijing deems sensitive.
Regulators also intend to close the loophole through which Chinese tech companies can go public on foreign stock markets via variable interest entities (VIEs). That was the governance structure that Didi Global used. VIEs are unlikely to be banned outright, but will get sector-specific new rules for when and how they can be used.
Even without those new rules, Didi’s complete climbdown will have a chilling effect on any other Chinese tech company still harbouring thoughts of a New York listing — if there is one.