A rough ride lies ahead as Didi prepares for a Hong Kong listing
A version of this article was first published on FinanceAsia.
The company known for moving people in China, is now heading out of the US.
In less than a year since its US initial public offering (IPO) in June, Chinese ride-hailing group Didi Chuxing (Didi) announced on Chinese blogging website, Weibo, its plans to delist from New York as well as preparation to reissue its shares in Hong Kong. The announcement on December 3 follows months of regulatory scrutiny from Beijing that has seen Didi’s market value be wiped out by more than half, and the launch of a probe into its collection of personal information.
Didi’s delisting speaks volumes for the sector and adds to the many intractable challenges facing Chinese technology companies. Back in late 2020, Chinese regulators unexpectedly scrapped the $30 billion IPO of Ant Group, Alibaba’s fintech arm. In the months that followed, several of the country’s largest tech companies paid antitrust fines, while support for the clampdown became more widely expressed.
The road to Hong Kong
Preparation to list in Hong Kong for the $30 billion market cap company has begun, but actual trading is still months into the future. Didi’s app remains suspended, which prevents new users from signing up, as Beijing's cybersecurity investigation into the company is yet to complete.
While deep pools of capital held by institutional investors and industry specialists portend as structural pull factors for Chinese groups to explore listing in New York, China’s tougher regulatory oversight acts as the push, explained Eric Ritter, adjunct professor of economics at Lakeland University in Tokyo, when speaking to FinanceAsia. Shanghai authorities are also reported to have fined Didi for using unlicensed vehicles in 2019, which could further colour the Hong Kong’s regulator’s perception of the tech group.
This all feeds into how China’s tech groups will monitor Didi, as it reshapes its organisation to appease the regulators, and tries to minimise impact on its market value. At the time of its IPO, Ant Group was valued at more than $300 billion. But with Ant Group expected to restructure its lending arm business and secure more capital reserves so that its risk profile more closely emulates that of a traditional bank, the fintech’s value now hovers between a third and half of the amount.
“The core issue remains data ownership,” Neil Mascarenhas, Fund Manager at Hamon Investment Group, told FA. “In the digital space, the fight for data is the fight to dominate.” Possible solutions that could assuage Beijing’s worries include transferring customer data into a separate, state-owned entity, but this would fundamentally alter the industry’s landscape, he added.
Back in July, Didi denied a report saying that it would privatise to appease Chinese authorities, and it seems that this scenario still remains unlikely. Few long-term shareholders are likely to be open to further investment losses after holding onto Didi shares for only a few months.
But the bigger risk, according to Ritter, is whether this will fuel another round of litigation, adding to the class action lawsuits that are building up against Didi, given that all relevant risks were not disclosed at the point of its IPO.
Didi’s shares have lost more than a fifth in value since the delisting news first surfaced at the end November. According to Ritter, while some shareholders may look to sell, other retail investors simply may not be able to hold Hong Kong shares.
How Didi manages its move to the Hong Kong bourse will prove indicative of just how far Chinese tech companies will need to travel in order to meet Beijing’s regulatory oversight. For investors, Didi’s case shows that for the time being, few paths are without potholes along the way.