Didi Global Inc. says it plans to delist from the New York Stock Exchange, barely five months after its initial public offering 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.
1. Why is Didi going to delist?
Chinese regulators opposed the U.S. listing, saying it could expose Didi’s vast troves of data to foreign powers. The firm pressed ahead with the June 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. In late November, people with knowledge of the matter said that the Cyberspace Administration of China, the agency responsible for data security in the country, had asked Didi’s top executives to devise a plan to delist from U.S. exchanges because of concerns about leakage of sensitive data.
Didi said it aims to list on the Hong Kong Stock Exchange and ensure that its American depositary shares can be swapped for “freely tradable shares of the Company on another internationally recognized stock exchange,” according to a statement. The firm is planning to file for the Hong Kong listing around March, people with knowledge of the matter told Bloomberg News. The entire process could take three to six months, First Shanghai Securities analyst Linus Yip said.
3. What are the challenges?
Prior to its U.S. IPO, Didi had weighed a potential Hong Kong listing but abandoned the effort after the city’s exchange, which makes far more stringent demands on companies seeking a listing than its New York peers, questioned Didi’s compliance with Chinese regulations. It didn’t have licenses to operate in certain cities and many of its drivers lacked a household registration, or hukou, for the cities where they lived, part of municipal requirements for providing on-demand ride-hailing services there, people with knowledge of the matter said in July. Even if Didi pulls off a listing in Hong Kong, some investors may choose this opportunity to sell rather than swap their shares. Didi stock has dropped 63% from its post-IPO peak, wiping out about $50 billion of market value. Technically speaking, swapping the U.S. shares for stock in Hong Kong should be relatively straightforward for most institutional shareholders. But the new securities may trade with a valuation discount: Hong Kong has long been home to some of the world’s lowest price-to-earnings ratios.
4. Why is this such a big deal?
Didi’s blockbuster IPO was the second-biggest in the U.S. 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 is Japan’s SoftBank Group Corp., with more than 20%.
5. Will China force other companies to change where they are listed?
Didi’s exit is unlikely to be the last, with the government said to be drafting regulations to effectively ban Chinese companies from going public on foreign markets using the so-called variable interest entity (VIE) structure. The Chinese internet regulator began probing two more U.S.-listed companies, Full Truck Alliance Co. and Kanzhun Ltd., soon after launching the review into Didi. Proposed U.S. legislation threatens to raise another potential obstacle to local listings by Chinese companies as it would mandate foreign companies to open their books to U.S. scrutiny or risk being kicked off the NYSE and Nasdaq within three years.
6. Will this end Didi’s troubles?
Unlikely. The cybersecurity probe into Didi is still ongoing, and regulators may still impose an array of punishments ranging from a fine to a suspension of certain operations or the introduction of a state-owned investor, Bloomberg News has reported. The municipal government of Beijing, where Didi is based, had previously proposed that Shouqi Group — part of the influential Beijing Tourism Group — and others based in the capital would acquire a stake in Didi, giving control to state-run firms. Media including the South China Morning Post have reported that regulators may force Didi to reshuffle its top management as punishment for defying Beijing. Didi has put forth several proposals to appease the powerful Cybersecurity Administration of China, including ceding management of its data to a private third party. 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.