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Didi shares plunge more than 20% on plan to delist from NYSE

Stock Markets Dec 03, 2021 05:25PM ET
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2/2 © Reuters. FILE PHOTO: A sign of Chinese ride-hailing service Didi is seen on its headquarters in Beijing, China July 5, 2021. REUTERS/Tingshu Wang 2/2
 
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By Julie Zhu and Kane Wu

HONG KONG (Reuters) - Just five months after its debut, ride-hailing giant Didi Global said it plans to withdraw from the New York Stock Exchange and pursue a Hong Kong listing, a stunning reversal as it bends to Chinese regulators angered by its U.S. IPO.

Reaction from investors was swift: the company's shares fell 22.17%, losing about $8.4 billion in market value. At their Friday close of $6.07, Didi shares have fallen about 57% since their June 30 IPO price.

"Following careful research, the company will immediately start delisting on the New York stock exchange and start preparations for listing in Hong Kong," Didi said on its Twitter-like Weibo (NASDAQ:WB) account.

Didi did not elaborate but said in a separate statement it would organize a shareholder vote at an appropriate time and ensure its New York-listed stock would be convertible into "freely tradable shares" on another globally recognized exchange.

Market participants said the decision ramps up uncertainty for investors in U.S.-listed shares of Chinese companies. U.S.-listed shares of Alibaba (NYSE:BABA) , Baidu (O:BIDU) and other Chinese firms fell on Friday.

"If you are a money manager and don’t understand what the rules are, it's easier to just sell and move your money where you better understand the rules of the game,” said Michael Antonelli, market strategist at Baird.

Sources told Reuters last month that Chinese regulators had pressed Didi's top executives to devise a plan to delist from the New York Stock Exchange due to concerns about data security.

Didi's board convened on Thursday and approved the U.S. delisting and HK listing plans, said two sources with knowledge of the matter.

Didi pushed ahead with a $4.4 billion U.S. initial public offering in June despite being asked to put it on hold while Chinese officials reviewed its data practices.

The powerful Cyberspace Administration of China (CAC) then quickly ordered app stores to remove 25 of Didi's mobile apps and told the company to stop registering new users, citing national security and the public interest.

Didi, whose apps, in addition to ride-hailing, offer products such as delivery and financial services, remains under investigation.

Redex Research analyst Kirk Boodry, who publishes on Smartkarma, said Didi may need to buy shares at the $14 IPO price to avoid legal issues and at the very least pay more than the current share price.

However, uncertainty remained over what the delisting means for investors. "There may also be some hope that by doing this, Didi management will improve its regulatory relations, but I am less confident on that," Boodry added.

The upending of Didi's New York listing - likely to be a difficult and messy process - underscores the huge clout Chinese regulators possess and their emboldened approach to wielding it.

Billionaire Jack Ma ran afoul of Chinese authorities after blasting the country's regulatory system, leading to the dramatic scuppering of a mega-IPO for Ant Group last year.

Didi's move will likely further discourage U.S. listings by Chinese firms and could prompt some to reconsider their status as U.S. publicly traded companies.

"Chinese ADRs face increasing regulatory challenges from both U.S. and Chinese authorities. For most companies, it will be like walking on eggshells trying to please both sides. Delisting will only make things simpler," said Wang Qi, chief executive of fund manager MegaTrust Investment (HK).

Didi plans to proceed with a Hong Kong listing soon and is not looking at going private, sources with knowledge of the matter told Reuters.

It aims to complete a dual primary listing in Hong Kong in the next three months and delist from New York by June 2022, said one of the sources.

The sources were not authorized to talk to the media and declined to be identified. Didi did not immediately respond to Reuters' requests for comment, and the CAC has yet to comment on its announcement.

"Not long after the IPO U.S. investors had been trying to sue DiDi for failing to disclose its ongoing talks with the Chinese authorities. This is unlikely to be taken any better," said William Mileham, an equity analyst at Mirabaud.

"It appears that DiDi are not waiting to be dual-listed, but could well be delisted from the U.S. before it starts trading on the HK stock exchange."

GRAPHIC-Didi's bumpy ride since listing in New York https://graphics.reuters.com/CHINA-DIDIGLOBAL/dwvkrzdjxpm/chart.png

HONG KONG HURDLES

Listing in Hong Kong, however, might prove complicated, particularly in a three-month timeframe, given Didi's history of compliance problems and scrutiny over unlicensed vehicles and part-time drivers.

Only 20%-30% of Didi's core ride-hailing business in China is fully compliant with regulations requiring three permits relating to the provision of ride-hailing services, vehicle licensing and drivers' licences, sources have previously said.

Didi's IPO prospectus said it had obtained ride-hailing permits for cities that together accounted for the majority of its rides. It has not responded to further queries about permits.

Those problems had been Didi's main obstacle to conducting an IPO in Hong Kong earlier and it is unclear whether the bourse will approve it now, sources with knowledge of the matter said on Friday.

"I don't think Didi qualifies to be listed anywhere before it ... sets up effective protocols to manage and ensure the drivers' responsibility and benefits," said Nan Li, associate professor for finance at Shanghai Jiao Tong University.

The Hong Kong bourse does not comment on individual companies, a spokesperson said.

Didi provided 25 million rides a day in China in the first quarter, its IPO prospectus said. Its main shareholders are SoftBank's Vision Fund, with a 21.5% stake, and Uber Technologies (NYSE:UBER) Inc, with 12.8%, according to a filing in June by Didi.

Sources have also told Reuters that Didi is preparing to relaunch its apps in China by the year's end in anticipation that Beijing's cybersecurity investigation of the company would be wrapped up by then.

Didi shares plunge more than 20% on plan to delist from NYSE
 

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Comments (11)
John Laurens
John Laurens Dec 03, 2021 4:52PM ET
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I've never once bought a Chinese company, and never will... sipping the tears of those who lose big on Chinese stocks.. Seriously LOVING THIS!!!
Simon Liu
Simon Liu Dec 03, 2021 4:10PM ET
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Is it USA who is pushing Chinese Company to delist from US market, in the reason of national security?
Tyler Phillis
Tyler Phillis Dec 03, 2021 4:10PM ET
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The SEC is applying US security law to Chinese listings. Most Chinese stock listings are not certificates of ownership like US or European stocks. They are usually holding companies that consist of an agreement to pay certificate holders an undefined and unknowable portion of the profits, which can be taken in part of in full by the Communist party. You end up paying the CCP for something entirely unknowable and often unreal.
Benoit Avril
Benoit Avril Dec 03, 2021 4:10PM ET
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No that's the Chinese government.
John Laurens
John Laurens Dec 03, 2021 3:01AM ET
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Why do the Chinese trolls continue to hang here and work so hard to defend the indefensible. It's just so sad, and gets more so through time. Can you imagine doing that for a living? It must be depressing..
Jerry Zhou
Jerry Zhou Dec 03, 2021 12:26AM ET
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The Chinese magnates are selling out of their Chinese holdings to try "shift" their funds out of the country due to gov risk. Here we have foreign investors whom have no clue of the domestic sentiments, blindly buying into supposing 'value stocks' by just looking at numbers and company presentation slides, and hence getting completely 'rug-pulled'.. *face palm*
Tyler Phillis
Tyler Phillis Dec 03, 2021 12:26AM ET
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...numbers and company presentations are more than what you get when you research Chinese stocks. Try it...you find that its mostly badly disguised fraud.
Fong SH
Fong SH Dec 02, 2021 11:36PM ET
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Correction - Even if you are a millionaire, you can't fight the trillions out there. This is how they operate in the boardroom, nobody will ever know what's going on behind those doors.
Fong SH
Fong SH Dec 02, 2021 11:35PM ET
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Please trade with knowledge, not with you gut feelings. Huge losses if you trade with gutsy feelings, being brave in financial markets is not a good thing. Even if you are a millionaire, you can't find the trillions out there. This is how they operate in the boardroom, nobody will ever know what's going on behind those doors. Reading is knowledge, read as much as you can, dig, in internet, in news, in forums too as you read what sentiments from others, piece them altogether & analyse what's right or wrong. Real news, fake news, assumptions, predictions, read them all, it will all piece out a bigger picture of what's going on. Don't just echo what others are saying, people grieve over losses than come out with all kinds of assumptions, this is where the trigger of fire sale will come. Buy where there is fears, this is the best opportunity if it is a value company. Just my thoughts, thank you
Fong SH
Fong SH Dec 02, 2021 11:27PM ET
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It's for good cause, but do not blame the regulators, it's the companies are are in troubles, most do not open their books clearly & totally, thus when there's a leak somewhere, troubles start coming out. It's not just China, it's everywhere. US have their fair share of troubles during the SubPrime Crisis too, not about the regulators as these companies hide or disguise their figures, nobody will know until there's a burnt somewhere. It's all over the world, well, until todate, nobody knows how to solve this loophole. For eg one owner sitting in multiple companies board, inter-locking each other, this is also something very messy in shareholders' board, what's the exposure? is it dangerous? are they fully disclosed? Nobody knows. This is sticky. As for small investors like us, well, news & knowledge is very limit to us, just need to be more careful, try to find out as much as you can. Just my own views. thank you.
Walaa Ahmed
Walaa Ahmed Dec 02, 2021 10:18PM ET
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Nzvee trust any chainese stock again. They are The biggest losers And lake us los as well .
Jack Bquick
Jack Bquick Dec 02, 2021 10:18PM ET
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Avoid Chinese stocks. More pain coming for those who do.
Lonnie Shelton
Lonnie Shelton Dec 02, 2021 9:46PM ET
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sooooo. the stock that I own will just vanish?
Bubba Born
Bubba Born Dec 02, 2021 9:46PM ET
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Sell it! Take the loss and chalk it up to experience when dealing with emerging markets. No matter what the analysts tout they are still hit or miss!
Erski Gumby
SB20 Dec 02, 2021 9:46PM ET
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Wait for a class action lawsuit.
John Laurens
John Laurens Dec 02, 2021 9:46PM ET
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Erski Gumby  lmfao.. in China.? that's funny
Tyler Phillis
Tyler Phillis Dec 02, 2021 9:46PM ET
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No, the money you threw away on a hunch will disappear.
 
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