Didi Global, the world’s largest ride-hailing company, announced intentions to withdraw from the New York Stock Exchange and pursue a Hong Kong listing just five months after its debut – a dramatic 180-degree turn as it appeases Chinese regulators enraged by its U.S. IPO.
Investors bet that the move would placate Beijing and serve as a spark for a recovery of the company’s domestic business prospects, sending its stock up 15% in pre-market trading.
Despite being requested to put its $4.4 billion initial public offering on hold until a review of the company’s data procedures was completed, Didi went ahead with it.
The powerful Cyberspace Administration of China then promptly ordered the removal of 25 of Didi’s mobile apps from app stores and forced the company to stop registering new customers, citing national security and public interest as justifications. Didi is still being investigated.
“Following thorough study, the business will immediately begin delisting from the New York Stock Exchange and begin preparations for a Hong Kong listing,” Didi announced on its Weibo account, which is similar to Twitter.
Didi did not provide an explanation for the idea, but it did say in a second statement that it would hold a shareholder vote at a later date and that its New York-listed stock would be convertible into “freely traded shares” on another internationally recognized stock exchange.
According to reporters, Chinese regulators pressured Didi’s top executives to come up with a plan to delist from the New York Stock Exchange due to data security concerns.
The disruption of Didi’s New York IPO – which is likely to be a tough and nasty process – demonstrates both Chinese regulators’ enormous power and their brazen approach to wielding it. Billionaire Jack Ma also got in trouble with Chinese authorities after criticizing the country’s regulatory structure, which resulted in the abrupt cancellation of Ant Group’s mega-IPO last year.
The action is also likely to dissuade Chinese companies from listing in the United States, prompting some to reassess their status as publicly traded corporations in the United States.
“Both the US and Chinese governments are posing significant regulatory obstacles to Chinese ADRs. It will be like walking on eggshells for most businesses as they strive to appease both sides. Delisting will simplify things “Wang Qi, CEO of fund manager MegaTrust Investment, echoed this sentiment.
Didi intends to IPO in Hong Kong soon and is not interested in being taken over.
According to one of the insiders, it plans to complete a dual primary listing in Hong Kong in the next three months and delist from New York by June 2022 under pressure from Beijing.
The sources declined to be identified since they were not authorized to speak to the media. Didi did not immediately react to a request for comment from reporters, and the CAC has yet to respond to the company’s announcement.
HURDLES IN HONG KONG
Given Didi’s history of compliance issues and the scrutiny it has experienced over unauthorized vehicles and part-time drivers, listing in Hong Kong could be difficult, especially in a three-month timeframe.
According to reports, just 20% to 30% of Didi’s core ride-hailing business in China is fully compliant with legislation needing three permits relating to ride-hailing services, vehicle licensing, and drivers’ licenses.
In its IPO prospectus, Didi stated that it had received ride-hailing permits in cities that accounted for the majority of its total rides. It has not responded to any additional requests for permissions.
Those issues had previously been the biggest impediment to the company completing an IPO in Hong Kong, and it is unclear whether the bourse will allow it now, according to persons familiar with the situation.
“I don’t think Didi qualifies to be listed anywhere until it… establishes adequate rules to oversee and secure the drivers’ accountability and benefits,” Nan Li, an associate professor of finance at Shanghai Jiao Tong University, said.
According to a representative for the Hong Kong Stock Exchange, the exchange does not comment on individual firms. The exchange’s stock, on the other hand, rose 4% on the chance of a Didi listing.
Didi is also planning to relaunch its apps in China by the end of the year, in the hopes that Beijing’s cybersecurity investigation into the business would be completed by then.
According to first-quarter data, Didi supplied 25 million rides every day in China. It made its New York debut on June 30 for $14 per American Depositary Share, but shares have since fallen 44 percent, valuing it at $37.6 billion as of Thursday’s close.
According to Didi’s June filing, SoftBank’s Vision Fund holds 21.5 percent of the company, followed by Uber Technologies Inc with 12.8 percent.
