Private transportation giant Didi exits the New York Stock Exchange, yielding to regulatory pressure from China

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Just five months after its debut, rideshare giant Didi Global said it plans to pull out of the New York Stock Exchange and seek a listing in Hong Kong, a surprising turnaround in the face of Chinese regulators angered by its US IPO.

The company’s shares fell about 15% after oscillating between profit and loss in pre-market trading, as investors initially bet the move would appease Beijing and serve as a catalyst for a revival of its business prospects. in the country.

“After careful investigation, the company will immediately begin delisting on the New York Stock Exchange and will begin preparations for listing in Hong Kong,” Didi said on his Twitter-like Weibo account on Friday.

Didi did not explain the reasons for the plan, but said in a separate statement that it would organize a shareholder vote at the appropriate time and ensure that its New York-listed shares were convertible into “freely tradable shares” on another recognized stock exchange. internationally.

Sources told Reuters last month that Chinese regulators had pressured top Didi executives to devise a plan to exit the New York Stock Exchange due to concerns about data security.

Didi’s board met on Thursday and approved the delisting plans for the United States and HK, said two sources with knowledge of the matter.

Didi went ahead with a $ 4.4 billion initial public offering in June despite being asked to suspend it pending a review of its data practices.

The powerful China Cyberspace Administration (CAC) then quickly ordered app stores to remove 25 of Didi’s mobile apps and told the company to stop registering new users, citing national security and public interest.

Didi, whose applications, in addition to transportation services, offer products such as delivery and financial services, remains under investigation.

Redex Research analyst Kirk Boodry, who publishes on Smartkarma, said there is an expectation that Didi will need to buy shares at the $ 14 IPO price to avoid legal trouble and will, at the very least, pay more than the current listing price. of actions.

However, there was still uncertainty about what the delisting meant for investors. “There may also be some hope that by doing this, the Didi management will improve its regulatory relationships, but I have less confidence in that,” added Boodry.

Didi’s New York reversal, which is likely to be a difficult and complicated process, illustrates both the enormous influence Chinese regulators possess and their emboldened approach to exercising it.

Billionaire Jack Ma also took on the Chinese authorities after ruining the country’s regulatory system, leading to the dramatic failure of a mega-IPO for Ant Group last year.

Did’s move is likely to further deter Chinese companies from listing in the United States and could lead some to reconsider their status as US listed companies.

“Chinese ADRs face increasing regulatory challenges from the US and Chinese authorities. For most companies, it will be like walking on eggshells trying to please both parties. De-listing will only simplify things,” he said Wang Qi, CEO of fund manager MegaTrust Investment (HK).

Didi plans to proceed with a listing in Hong Kong soon and is not considering going private, sources with knowledge of the matter told Reuters.

Its goal is to complete a dual primary listing in Hong Kong in the next three months and delist from New York by June 2022, one of the sources said.

The sources were not authorized to speak to the media and declined to be identified. Didi did not immediately respond to Reuters requests for comment, and the CAC has yet to comment on its announcement.

“Not long after the IPO, American investors had been trying to sue DiDi for failing to disclose his ongoing talks with the Chinese authorities. This is unlikely to be better taken,” said William Mileham, an equity analyst at Mirabaud. “It appears that DiDi is not waiting to be listed on the Hong Kong Stock Exchange, but it may well be delisted in the United States before it goes public on the Hong Kong Stock Exchange.”

Hong Kong obstacles

However, listing in Hong Kong could prove difficult, particularly in a tight three-month time frame, given Didi’s history of compliance issues and the scrutiny it has faced over unlicensed vehicles and part-time drivers.

Only 20-30% of Didi’s main carpool business in China fully complies with regulations requiring three permits related to the provision of private transport services, vehicle licenses and driver’s licenses, sources previously said.

Didi said in its IPO prospectus that it had obtained carpool permits for cities that collectively accounted for the majority of its total trips. It has not responded to further inquiries about permits.

Those issues had been the main obstacle to the company conducting an IPO in Hong Kong previously, and it remains to be seen whether the exchange will approve it now, sources with knowledge of the matter said on Friday.

“I don’t think Didi qualifies to be listed anywhere before … establishes effective protocols to manage and ensure driver liability and benefits,” said Nan Li, associate professor of finance at Shanghai Jiao Tong University.

The Hong Kong Stock Exchange does not comment on individual companies, a spokesperson said. However, shares on the exchange were up 4% on the prospect of listing on Didi.

Didi provided 25 million trips a day in China during the first quarter, according to its initial public offering prospectus. It made its New York debut on June 30 at $ 14 per American Depositary Share, but those shares were down 44% as of Thursday’s close, valued at $ 37.6 billion.

Its main shareholders are SoftBank’s Vision Fund, with a 21.5% stake, and Uber Technologies Inc, with 12.8%, according to a document presented in June by Didi.

Sources have also told Reuters that Didi is preparing to relaunch its apps in China by the end of the year, anticipating that Beijing’s cybersecurity investigation into the company would be concluded by then.

(REUTERS)