Didi’s investors find themselves trapped between a rock and a hard spot in front

Shareholders of ride-hailing giant Didi Global have long struggled to avoid losses, according to analysts, as Chinese regulators voted to delist the company from the New York Stock Exchange (NYSE) later this month or put the firm under further scrutiny.

A shareholder vote on the delisting, scheduled for May 23, will enable Didi to complete its revision process, part of a Chinese government-directed cybersecurity review, “to resume normal operations,” according to a filing last week by company chairman and chief executive Will Cheng Wei. In the US Securities and Exchange Commission.

Although the move marks a rare event in China’s corporate history, Beijing-based Didi Chuxing, who unveiled Didi Global in New York last year, said delisting would help restore its 26 apps to various Chinese app stores and enable the company. To re-introduce new user registration in its home market.

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Analysts said Didi investors are expected to see further losses as the company’s shares move from the NYSE to the over-the-counter (OTC) market.

A businessman is working on the floor of the New York Stock Exchange during the initial public offering of ride-hailing company Didi Global on June 30, 2021. Photo: Reuters alt = A businessman works on the floor of the New York Stock Exchange during an initial public offering at the ride-hailing company Didi Global on June 30, 2021. Photo: Reuters>

“The liquidity of Didi’s stock in the OTC market will be much lower,” said Luo Zhiu, a partner at the Diheng Law Office in Beijing and an expert on cross-border primary public offering, consolidation and acquisition.

“Delisting” can negatively affect the value and liquidity [the company’s] Securities “, Didi said last week. Didi’s stock has lost nearly 90 percent of its value since its June 30 IPO, when it initially traded at 14 14 per share.

The company’s shareholder meeting is expected to be conducted as a virtual conference due to the strict travel ban in Beijing, where the Covid-19 control system is in effect. Once the shareholders agree to remove Didi from the NYSE, according to Luo, the delisting process can be completed within one to two months.

A simple majority or more than half of the votes are needed to finalize Didi’s decision. According to a company statement issued last week, Cheng and Didi’s president, Jin Liu Qing, with a combined voting power of 9.67 percent, would vote in favor of the listing proposal.

According to Winston Ma, an associate professor at New York University School of Law, Didi will be untouchable for some investment houses because they cannot trade pink sheet stock in the OTC market.

For example, “some large institutional investors may have to split their sister holdings,” says Ma.

The stakes are high for Didi shareholders because the company says there is no Plan B for the delisting initiative.

Didi will not be able to submit an application for listing in another public market until Beijing acknowledges the end of its revision process.

The China Securities Regulatory Commission (CSRC), which has spoken to its American counterpart, had previously said that Didi’s listing would not affect other US-listed Chinese technology companies.

Meanwhile, there are signs that regulatory pressure on Chinese technology companies could ease soon.

The Chinese People’s Political Consultative Conference, the country’s top political advisory body, held a special symposium last Tuesday to promote the digital economy, sending a signal of support to the domestic technology sector after an 18-month regulatory crackdown.

Chinese Vice-Premier Liu said the government will support the online platform economy and the healthy development of private companies, as well as publicly support digital initiatives in domestic and foreign capital markets.

“Liu’s remarks, as well as progress in resolving China’s auditing dispute with the United States, are expected to pave the way for a new foreign listing of Chinese technology companies,” said Luo, DeHeng’s legal partner.

Under the revised draft rules published last month, the CSRC has withdrawn a requirement that only mainland regulators conduct audit inspections of sites of Chinese companies listed abroad.

Founded in 2012 with a seed fund of just 800,000 yuan (US $ 118,688), Didi described the company’s chief executive, Cheng, as a “technology-driven company with user experience and access to data, rather than relying solely on traffic and capital.” According to his 2016 book Didi: Sharing economy changes ChinaWhich was co-written with other senior executives of the company.

Didi marked a major milestone in 2016 because of Uber Technologies’ success in acquiring the China business.

Didi’s total ride orders reached 9.5 billion last year, meaning the firm recorded more than 26 million rides per day, according to its latest financial release.

The crackdown on Chinese regulators, however, has weakened Didi’s position in the world’s largest ride-hailing market. The company’s order volume fell 29 percent between June last year and March this year, according to monthly growth rate statistics released by China’s Ministry of Transportation. Small competitors Kao Kao Mobility, manufactured by carmaker Gili, and T3 Chuxing, supported by various state-owned companies, saw their orders grow 34 percent and 104 percent, respectively, over the same period.

The article was originally published in the South China Morning Post (SCMP), the most authoritative voice reporting in China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit SCMP’s Facebook Twitter Pages Copyright 2022 South China Morning Post Publishers Ltd. All rights reserved.

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