Chinese giant Didi’s road trip through public markets – and around regulatory roadblocks – remains as harrowing as ever.
The last official salvo came from the United States. This further increases the already long chances of a quick delisting and relisting elsewhere. The bumpy road to the bottom of the title could continue.
The company is being questioned by the U.S. Securities and Exchange Commission over matters related to its June 2021 IPO in New York, according to the company’s annual report it filed this week.
Chinese tech stocks, broadly speaking, have gotten a reprieve from Beijing: the government intends to suspend its regulatory campaign against them, The Wall Street Journal reported last week. But Didi himself, who apart from Ant Group has been the most high-profile victim of Beijing’s anger at the internet tech industry, is still mired in regulatory limbo at home and abroad.
Didi says he is cooperating with the SEC’s investigation, subject to strict compliance with applicable Chinese laws and regulations. The company’s view of the situation is not exactly reassuring: “We cannot predict the timing, outcome or consequences of any such investigation.” The stock fell 7% in after-hours trading on Tuesday.
Didi did not reveal more details about the probe. But gaps in pre-IPO disclosures are a likely area of investigation. The company did not tell investors that Chinese officials had urged the company to delay the IPO because the government feared revealing sensitive information in offering documents. Beijing subjected Didi to a cybersecurity review just days after the IPO, resulting in a disastrous selloff that has only gotten worse since. Didi’s shares are now worth only about 14% of what they were worth when they went public.
The new US scrutiny also comes as regulatory pressure across the Pacific has yet to fully abate, giving comfort to signals from Beijing about the overall intensity of the tech crackdown. In December, the company announced that it would seek to list in Hong Kong. But last month, Didi said he would withdraw from the New York listing before seeking a public listing elsewhere, to cooperate with Beijing’s cybersecurity probe.
Shareholders will vote on delisting this month, but business leaders and strategic investors like SoftBank and Tencent likely have enough votes to push it through. Ordinary investors who have already suffered large losses may not be able to sell their shares for a long time after the company is delisted.
Regulatory uncertainties also directly harm business operations. Didi’s revenue for the fourth quarter of last year fell 12.7% year-on-year as the company was banned from recruiting new users and its apps were pulled from app stores in China. Covid-19 lockdowns in major Chinese cities are putting even more salt in its wounds.
Like many other Chinese tech companies, Didi has come under fire from regulators in China and the United States over the past year. This latest action by the United States shows that the light at the end of the tunnel – if it ever arrives – is still very faint and distant.
Write to Jacky Wong at [email protected]
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