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Didi extends slide as Beijing clampdown sounds alarm for U.S.-listed China companies

Stock MarketsJul 07, 2021 03:30PM ET
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© Reuters. FILE PHOTO: A man walks past the headquarters building of Chinese ride-hailing service Didi in Beijing, China July 5, 2021. REUTERS/Tingshu Wang

By Stephen Culp and Medha Singh

(Reuters) -Didi Global Inc fell for the third consecutive session on Wednesday after China ordered the app removed from mobile app stores as part of a broader crackdown on China-based companies with overseas listings.

In its fifth day of trading as a U.S.-listed company, the stock was last down 4.2%, about 28% below its $16.65 offer price.

Beijing extended its actions beyond the tech sector on Tuesday, vowing to step up scrutiny of Chinese companies listed offshore in order to crack down on illegal activity.

On Wednesday, China fined internet companies including Didi, Tencent Holdings (OTC:TCEHY) Ltd and Alibaba (NYSE:BABA) Group Holding Ltd for failing to get approval for earlier merger and acquisition deals.

U.S.-listed shares of Alibaba and Tencent Music Entertainment Group (NYSE:TME) were last off 1.1% and 2.4%, respectively.

Including Didi, the largest U.S. listing by a Chinese company since 2014, a record $12.5 billion has been raised so far in 2021 from Chinese firms listing in the United States, Refinitiv data shows.

In a sign of nervousness among investors about Didi, index publisher FTSE Russell also warned that it would not include Didi's shares in its global equity indexes if trading is halted in Wednesday's session.

As of 3:15 p.m. EDT, trade of Didi shares had not been halted.

"For Didi, the situation is bleak, but for Chinese companies preparing to list in the U.S. it may be even bleaker," said Samuel Indyk, senior analyst at uk.Investing.com.

Republican U.S. Senator Marco Rubio last month had called for the U.S. Securities and Exchange Commission to block Didi's IPO https:// because China does not allow auditors to conduct the same oversight that other U.S.-listed companies face.

"Allowing Didi, an unaccountable company based in China, to list on the New York Stock Exchange was reckless and irresponsible," he said on Wednesday. "Beijing’s recent crackdown on the company only further underscores the risks posed by Chinese companies to U.S. investors."

In June, the U.S. Senate passed a bill led by Senator John Kennedy, which would pressure China by requiring foreign companies to hasten their compliance with Public Company Accounting Oversight Board audits. The bill still needs to pass in the U.S. House of Representatives.

"The drop in the value of Didi shares further highlights that the Chinese Communist Party is perhaps the biggest threat facing U.S. investors today," an aide to Kennedy said.

Analytics firm S3 Partners warned of another surge in short-selling of U.S.-listed Chinese companies as a clampdown by Beijing drove a third straight day of selling of ride-hailing giant Didi.

Short interest in the group has fallen to $43.5 billion from $50.6 billion this year, while short interest as a percentage of float fell to 3.81% from 5.67%, reflecting a closing out of some positions that were in the red after a market rally in January and February, Ihor Dusaniwsky, S3's managing director of predictive analytics, said in a report.

Invesco Golden Dragon China ETF, which tracks U.S. exchange-listed companies that are headquartered in China, has lost a third of its value from its February high, meaning short sellers who bet against the index over that period should have profited.

"We’ve been hearing the back and forth with U.S. and China with tougher regulations on IPOs," said Ryan Detrick, senior market strategist at LPL Financial (NASDAQ:LPLA) in Charlotte, North Carolina.

"It’s one small part of two superpowers disagreeing on many things," Detrick added. "It’s a fallout from a deeper divide."

Didi extends slide as Beijing clampdown sounds alarm for U.S.-listed China companies
 

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Comments (4)
John Hat
John Hat Jul 08, 2021 12:19AM ET
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De-list all Chinese companies and force them to compensate Americans for their shares.
Khwarizmi Algebra
Khwarizmi Algebra Jul 07, 2021 3:47PM ET
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Thank you FUD news for bringing chinese companies to unblievable discount for investment.
Kaveh Sun
Kaveh Sun Jul 07, 2021 8:43AM ET
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Westerners r not allowed to own properties, companies in China. When u open a company in China, u have to have a Chinese partner to control n spy on u. China wants only the west money, nothing else.
Anakin Skwk
Anakin_Skwk Jul 07, 2021 8:43AM ET
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Tesla has wholly owned subsidiary in Shanghai. Stop spreading fake news.
Kaveh Sun
Kaveh Sun Jul 07, 2021 8:43AM ET
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Anakin Skwk Tesla is the only exception so they can steal the ev tech from it. All enginerings, etc must be done in China. After they steal it, they will make h/e/l/l out of tesla. They already made the moves on Tesla.
Khwarizmi Algebra
Khwarizmi Algebra Jul 07, 2021 8:43AM ET
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Millionss of foriegn investors and US companies have business in china and factories. They are making excellent profit. So, no place for your illusions.
Notvery Goodathis
Peteymcletey Jul 07, 2021 8:01AM ET
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Why? They've already wiped out 2021 gains across the board.
 
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