Tag Archives: Didi Chuxing

China Continues To Welcome Foreign Capital But On Beijing’s Terms

THE DETAILS OF China’s well-signalled coming restrictions on overseas listings by its start-ups are slowly becoming clearer.

A consultation paper issued on December 24 by the China Securities and Regulatory Commission lays out a regime that would require any company wanting to sell shares abroad to register with it. The commission would review the listing plans and coordinate with other relevant agencies.

Authorities would have the power to block any overseas listing they considered a threat to national security, which would encompass compliance with the country’s new data protection regime.

The new rules fall short of a blanket ban on overseas initial public offerings (IPOs), which some had feared. However, they would give authorities blanket veto power over any proposed IPO or secondary listing considered undesirable. Chinese firms will be free to continue to take foreign capital where it is supportive of, or at the least, does not conflict with China’s national goals.

More surprisingly, perhaps, the new regime would not kill off variable interest entities (VIEs), the governance structure often adopted by Chinese companies to get around strict restrictions on Chinese companies taking foreign investment. While VIEs have long existed in legal limbo, they will be allowed to register with the securities regulator providing they are legally compliant.

The legal compliance could well refer to not falling afoul of a blacklist that comes into effect on January 1 of sensitive sectors that would be off-limits to foreign investors.

The regulatory uncertainty has already had a chilling effect on overseas listings, especially since ride-hailing app company Didi Chuxing incurred the wrath of regulators when it pushed ahead with its $4.4 billion IPO in New York in June.

Authorities were cracking down on the tech sector, and Didi’s blanking of their advice to pull the listing led to a series of retaliatory measures and, earlier this month, an announcement that it would delist from New York and switch to a Hong Kong share listing.

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Chastened Didi Chuxing Will Head To Hong Kong

Didi Chuxing logo

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.

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China’s Tech Crackdown Cracks On

Screenshot of Zhipin online recruitment company's web site

THE CRACKDOWN ON fast-growing technology firms continues apace.

Online recruiter Zhipin, owned by Kanzhun Ltd., (seen above) and the leading commercial vehicle hailing apps Huochebang and Yunmanman, both owned by Full Truck Alliance Co. Ltd., are now facing Cyberspace Administration of China (CAC) investigations to ‘prevent national data security risks and safeguard national security’. These platform services have reportedly been banned from registering new users.

The moves follow hard on similar action taken against the leading ride-hailing company Didi Chuxing, which was ordered to remove its app from app stores. Existing users can seemingly continue to use their apps in all four cases.

A common thread connecting the companies is that their parent have all recently listed on the New York Stock Exchange, suggesting authorities are comfortable putting pressure on their stock market valuations to bring them into line and, in some likelihood, to wean themselves off US-sourced hardware and software as part of the push to develop indigenous technology.

It may also be part of a move to ensure that the growing reams of data on Chinese citizens, and, more darkly, on citizens worldwide as these app-based services expand globally, is held on Chinese servers and thus accessible to the state and, as importantly, not readily available to foreign companies and authorities.

Ride-hailing app data is potentially particularly sensitive as it includes location data.

Disruption to the business activity of even prominent Chinese tech firms is seen as a small price to pay to ensure alignment with Party’s geopolitical and economic agenda, as has been previously demonstrated with Alibaba’s fintech affiliate, the Ant Group

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End Of The Road For Uber in China

 

Licenced under Creative Commons from iphonedigital

A BILLION DOLLARS loss here. A billion dollars loss here. Pretty soon you are talking serious red ink.

That is the scale of the annual loss that US ride-sharing service and poster child for the sharing e-economy, Uber, has apparently been making in an effort to break into the China market since 2014. In the face of bitter resistance from local rival Didi Chuxing (app seen above), it has now decided to end the debilitating price war between the two by selling its China operation to its competitor.

The deal struck will leave Uber owning 17.5% of Didi Chuxing, which itself was the fulmination of a merger between Didi Dache and Kuaidi Dache. Didi Chuxing, which also owns a stake in Uber’s US rival, Lyft, will end up with a 90% market share in China (and an estimated market valuation of $35 billion).

The deal comes, ever so coincidentally, within days of China agreeing to provide a legal framework for taxi-ordering apps, which have existed in a grey area. The new rules, due to come into effect in November, will make the heavy discounting that Uber and Didi Chuxing engaged in during their price war illegal.

In that, there may be some succor for Chinese taxi drivers, who, in common with cab drivers in many countries, have been protesting against the new competition of ride-sharing apps which they say is destroying their business.

Didi Chuxing will be able to rebuild its margins, to the pleasure of major shareholders which include Alibaba and Tencent. It is also likely to benefit from the $1 billion it is to invest in Uber’s global operations under the deal, especially once Uber makes its intended initial public offering in the United States.

That share offering will be even more attractive to investors without billion-dollar-losses in China weighing down Uber’s profit and loss account.

There are echoes of Yahoo!’s experience in China. The internet media company sold its China businesses to Alibaba in 2005, along with taking a stake in the Chinese tech group. Regardless of what is happening to Yahoo! now, that China deal paid off handsomely for it.

The model well may be repeated by other U.S. tech companies that are finding doing business in China to be a long and expensive road.

 

 

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