- DiDi Global has decided to succumb to regulatory pressure and delist from the New York Stock Exchange.
- DiDi plans to pursue a listing of its common shares on an international exchange.
- In this article, I am answering four key questions regarding the decision to delist, including whether DiDi will pay at least $14 to redeem American Depositary Shares.
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DiDi Global Inc. (DIDI) has finally decided to succumb to regulatory pressure and delist from the New York Stock Exchange. Just last week, Bloomberg reported the Cyberspace Administration of China was exerting pressure on DiDi to go private claiming that its public company status in New York was posing a threat to the privacy of sensitive customer data. DiDi plans to pursue a listing of its common shares on an international exchange - probably the Hong Kong Exchange - enabling existing ADS holders to convert their shares into common shares of the company. This is what we know so far, and I thought it best to shed some light on a few areas to help investors determine the best course of action today.
Will DiDi pay $14 to redeem American Depositary Shares?
DiDi Global went public at $14 per share less than six months ago, and the stock price has almost halved since then. When I read the Bloomberg report on DiDi's possible delisting last week, I realized that the company could either opt for privatization with the support of the Chinese government or else consider listing its common shares outside of the United States. If the company were to go private, DiDi, in my opinion, would have offered at least $14 per share to redeem the shares as failure to do so would have attracted unnecessary legal battles as the company went public very recently. The situation, however, could be a bit different now.
If DiDi decides to redeem shares and then list common shares on an international exchange, I believe the company will still offer $14 per share to cancel out the existing shares. That being said, the company might pursue an IPO in Hong Kong and then provide the option of converting ADSs into common shares, in which case shareholders will retain their ownership, but on a different stock exchange. Both of these options, in my opinion, will be considered by DiDi, which means investors will have to wait for another update from the company to get a clear understanding of what is happening.
What is the best way to be prepared for DiDi's delisting?
If you still believe in DiDi Global's growth prospects, you might want to be a shareholder of the company regardless of whether the company is listed in New York or Hong Kong. The best way to ensure that you have access to DiDi shares in Hong Kong is to maintain a brokerage account at a firm that provides access to international stock exchanges. If you are not sure whether your broker provides access to Hong Kong Exchange, it makes sense to speak with them today to clarify your doubts.
Will delisting relieve DiDi of the regulatory pressure?
No, it won't. I know this does not sound promising, but if you take a look at the timeline of events, it would be easy to figure out that China is not done with DiDi just yet. DiDi's decision to delist in New York is a big win for regulators, and it actually sends a strong message to other Chinese tech companies as well, but I believe the regulatory scrutiny on DiDi will continue for much longer until the company agrees to do one of the following.
- Selling a major stake to a Chinese state investor so that regulators will have direct control over the business.
- Separate its financial services business from the ride-hailing business.
The company actively provides credit services to drivers, and I believe Chinese regulators have made it a habit to go hard on tech companies that diversify into the financial services sector, so the company is expected to address the concerns regulators have raised from this front before moving forward.
DiDi is the leading ridesharing platform in China and is well-positioned to expand into other regional markets as well, which makes me bullish on the prospects for the company given that ridesharing is a fast-growing business sector in this region. That being said, the company will have to get its act together and address privacy concerns highlighted by Chinese regulators before focusing on making the most of favorable macroeconomic conditions.
Will Chinese tech giants follow DiDi?
The Securities and Exchange Commission approved an amendment to implement the Holding Foreign Companies Accountable Act yesterday (December 2), which gives power to the SEC to delist foreign companies if they fail to comply with audit requirements introduced by the Public Company Accounting Oversight Board. Chinese companies have historically failed to honor the audit requests from the PCAOB, and this new rule is likely to escalate the tensions between the United States and China in the future, which means many Chinese tech companies might pursue primary listings in Hong Kong where they will not be the victims of the tensions between these two nations. For this reason, I would not be surprised if Chinese tech giants follow DiDi to move out of the United States.
DiDi is preparing to delist in New York while pursuing an international listing, and the company is yet to provide color on many important questions. At this point in time, the best course of action for an existing investor of DiDi would be to make sure he has access to the Hong Kong Exchange through his broker while closely monitoring the developments to understand the company's strategy. DiDi remains a business that I find attractive, but the company is highly unlikely to deliver positive investment returns until regulatory challenges are dealt with.
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This article was written by
Dilantha De Silva is a former buy-side analyst.He runs the investing group Beat Billions. It provides investment research with a focus on small-cap stocks that are well positioned to deliver long-term alpha returns. With a strategy centered around earnings events such as earnings surprises and earnings revisions, it tries to identify earnings catalysts that could move stocks. The group provides access to in-depth research reports, model portfolios, real-time guru picks, and a vibrant investor community. Learn more.
Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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