Didi delisting could provide a silver lining for IPO investors

Bad news abounds in the Chinese investment landscape these days, with Didi Global (HAVE I GOT) – Get the DiDi Global Inc. in turn the chopping block last week.

“Chinese cybersecurity regulators have asked senior carpool market leader Didi Global to prepare plans for delisting from the New York Stock Exchange, media reports,” said Alex Frew McMillan of TheStreet in Real Money. “Such a move, motivated by data security concerns, would raise questions about the viability of any US listing for a Chinese company that holds personal data about customers.”

McMillan points out that with Didi shares trading 42% below their listing price on June 30, a departure from the NYSE could offer investors a way to get their money back.

For Didi, two options are currently on the table:

  • Privatization, priced at or above the listing price of $ 14, to avoid shareholders’ lawsuits; or a re-sale in Hong Kong
  • A delisting in New York, with investors likely to receive shares at or at a discount from the current US price.

“Didi’s shares flopped within days of its largest US IPO (at $ 14 per share) by a Chinese company since Alibaba Group Holding’s record IPO at the time. . (BABA) – Get the report from Alibaba Group Holding Ltd. in 2014, ”noted McMillan.

Besides Softbank (SFTBY) , Uber (UBER) – Get the report from Uber Technologies, Inc. is the second largest external shareholder with an 11.9% stake. Tencent Holdings, Chinese video game maker and operator of WeChat applications (TCEHY) holds 6.4%.

Days after the IPO, China launched a data security investigation at Didi Global and prevented it from signing new clients as its app was pulled from Chinese app stores.

The little-known Chinese Cyberspace Review Bureau, established to oversee a review mechanism that came into effect on June 1, 2020, has been tasked with reviewing the overseas list of any companies with personal information on more than a million customers, ”McMillan said. .

“These rules, however, were not published until after Didi’s offer. Didi followed the proven overseas listing method that has satisfied Chinese securities regulators for years, ”he added. “This had not appeased cybersecurity regulators, who did not have a review system in place but” suggested “the company delay its offer, an option it deemed unpleasant given the preparation work and investor expectations surrounding the offer. “

Today, the Cyberspace Administration of China actively oversees the activities of Chinese tech companies and is particularly concerned about the potential for data leaks when foreign investors hold large stakes in a Chinese tech operator.

“All foreign tech listings with a million or more customers must receive formal approval after a cybersecurity review,” he added.

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