(Bloomberg) — Didi Global Inc. is preparing to delist from the New York Stock Exchange, after its initial public offering there last year drew the wrath of Beijing. The Chinese ride-hailing giant said it plans to list in Hong Kong instead, allowing existing shareholders to convert their holdings in the company. There are challenges ahead — for Didi, its shareholders and other Chinese companies looking to go public. Meanwhile, the government’s ongoing investigation and new regulatory measures have hit Didi’s bottom line.
1. Why is Didi going to delist?
Chinese regulators opposed the US listing, saying it could expose Didi’s vast troves of data to foreign powers. The firm pressed ahead with the June 2021 IPO anyway, in a move that Beijing saw as a challenge to its authority. Days after the listing, the government announced a cybersecurity probe into the firm and forced its services off domestic app stores. Later the Cyberspace Administration of China, the agency responsible for data security, was said to have asked Didi’s top executives to devise a plan to delist because of concerns about leakage of sensitive data.
2. How will it work?
Didi has said that listing on the Hong Kong Stock Exchange will ensure that its American depositary shares can be swapped for “freely tradable shares of the Company on another internationally recognized stock exchange.” However, the firm was said to have suspended preparations for a Hong Kong listing after being informed by regulators that its proposals to prevent security and data leaks had fallen short. Shareholders approved the US delisting on May 23 and Didi is expected to work with Chinese regulators on an overhaul of its data systems. The company has put forward several ideas, including ceding management of its data to an outside party in China. Settling the data issue and then preparing for a Hong Kong listing could take months.
3. What are the challenges?
Some institutional shareholders may be forced to sell once Didi stops trading in New York as they can’t hold unlisted equity. A Hong Kong listing carries its own challenges as the local exchange makes more stringent demands on companies seeking to list than its New York peers. Even if Didi pulls off a listing in Hong Kong, some investors may choose to sell rather than swap their US shares, which have fallen drastically. Didi in December disclosed a $4.7 billion loss in the September quarter after revenue slid 13% from the previous three months.
4. Why is this such a big deal?
Didi’s blockbuster IPO was the second-biggest in the US by a company based in China (Alibaba Group Holding Ltd.’s was bigger) and gave Didi a market value of about $68 billion. The listing, which was shepherded by a who’s who of Wall Street banks, appeared to be a model for how international investors could tap into China’s red-hot tech sector. Didi’s largest shareholder was Japan’s SoftBank Group Corp., with more than 20%.
5. Will China force other companies to change listings?
Didi’s exit is unlikely to be the last. The Chinese internet regulator began probing two more US-listed companies, Full Truck Alliance Co. and Kanzhun Ltd., soon after launching the review into Didi. In December the government unveiled tighter regulations for Chinese companies seeking to go public abroad using the so-called variable interest entity (VIE) structure, as Didi did. Meanwhile, the US is moving to implement a new law that mandates foreign companies open their books to U.S. regulators or face delisting starting in 2024. The US Securities and Exchange Commission says that only two jurisdictions historically have not allowed the required inspections, China and Hong Kong.
6. Will this end Didi’s troubles?
Unlikely. The cybersecurity probe into Didi is ongoing, and regulators may still impose an array of punishments such as a fine, suspension of certain operations or the introduction of a state-owned investor. The municipal government of Beijing, where Didi is based, was said to have proposed that the Shouqi Group — part of the influential Beijing Tourism Group — and others acquire a stake in Didi, which would give control to state-run firms. Media including the South China Morning Post have reported that regulators may force Didi to reshuffle its top management. President Xi Jinping’s campaign to achieve “common prosperity” has heaped pressure on platform companies like Didi to offer better wages and benefits to its army of drivers. More fundamentally, the Chinese government is expected to maintain strict curbs on and scrutiny over big tech enterprises that amass sensitive data.
(Updates after shareholders approved New York delisting in question 2)
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