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Didi Delisting May Hold Silver Lining for IPO Investors

Crackdown by Beijing on tech companies continues to ramp up.

Bad news abounds across the Chinese investment landscape these days, with Didi Global  (DIDI) - Get Free Report taking its turn on the chopping block last week.

“Chinese cybersecurity regulators have told the top brass at ride-hailing market leader Didi Global to prepare plans to delist from the New York Stock Exchange, according to media reports,” said TheStreet’s Alex Frew McMillan in Real Money. “Such a move, prompted by concerns over data security, would raise questions about the viability of any U.S. listing for a Chinese company that holds personal data on customers.”

McMillan points out that with Didi shares trading 42% below their listing price on June 30, a departure from the NYSE could offer a way for investors to get their full money back.

For Didi, two options are reportedly on the table right now:

  • A privatization, which would come at a price equal to or above the US$14 listing price, to avert shareholder lawsuits; or a relisting in Hong Kong
  • A delisting in New York, with investors likely to receive shares equal to or at a discount to the current U.S. price.

“Didi shares flopped days after its initial public offering, (at $14 per share) the largest in the United States by a Chinese company since the then-world record IPO of Alibaba Group Holding   (BABA) - Get Free Report in 2014,” McMillan noted.

Besides Softbank  (SFTBY) , Uber  (UBER) - Get Free Report is the second-largest outside shareholder, with an 11.9% holding. Chinese video game maker and WeChat app operator Tencent Holdings  (TCEHY)  owns 6.4%.

Days after the IPO, China launched an investigation into data security at Didi Global, and blocked it from signing up new customers, with its app pulled from Chinese app stores.

“China's little-known Cyberspace Review Office, created to oversee a review mechanism that went into effect on June 1, 2020, has been charged with reviewing the overseas listing of any company that holds personal information on more than one million customers,” McMillan said.

“Those rules, however, were only released after the Didi offering. Didi followed the tried-and-true method of listing abroad that satisfied Chinese securities regulators for years,” he added. “It had not appeased cybersecurity regulators, who had no review system in place but 'suggested' the company delay its offering, an option it felt was unpalatable given the prep work and investor expectations surrounding the offering.”

Now, the Cyberspace Administration of China is actively supervising what Chinese tech companies are up to, and it is particularly concerned about the potential for data leakage when foreign investors hold large stakes in a Chinese technology operator.

“All foreign tech listings with one million or more customers must receive formal approval after a cybersecurity review,” he added.

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