4 Q&As About DiDi's Plans To Delist

Summary

• 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.
• Looking for a helping hand in the market? Members of Leads From Gurus get exclusive ideas and guidance to navigate any climate. Learn More »

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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.

1. Selling a major stake to a Chinese state investor so that regulators will have direct control over the business.
2. 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.

Takeaway

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.

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.

Comments

[Interstellar Investments]

When Didi delist to OTC, it will be done alright, a forgotten stock with limited liquidity and under the control of the CCP

It will trade sideways for next 5 years, as a shareholder, you won’t make any money

[Jason Z]

DIDI is done, the CCP controlled media are savagely attacking the Liu Family for alleged treason, Liu family owns Lenovo and DIDI, they will probably soon be arrested, and the companies nationalized. Evergrande is about to be nationalized too, it's all part of CCP's plan, they cut off all bank refinancing to Evergrande, to make sure it will quickly bankrupt and then nationalized.

I think BABA is next on the list to be nationalized, after Evergrande and DIDI.

[tmdoherty]

@Jason Z I don't think even the Chinese government is quite stupid enough to nationalize Evergrande. Not now.

Hong Kong (CNN Business)Evergrande, the embattled Chinese property developer, has defaulted on its debt, according to Fitch Ratings.
The credit ratings agency on Thursday downgraded the company and its subsidiaries to "restricted default," meaning that the firm has failed to meet its financial obligations.

Fitch said the downgrade reflects the company's inability to pay interest due earlier this week on two dollar-denominated bonds. The payments were due a month ago, and grace periods lapsed Monday.

[karondongotbanned]

when DIDI moves to OTC, price will stabilize. it will be a good time to buy then. Tencent was smart listing to OTC, avoiding these problems

[tmdoherty]

@karondongotbanned Wonder how you'll feel when the CCP and Xi decide they will simply nationalize DIDI and eliminate shareholders, "in the best interests of the common people."

They can easily do this, you know, and I could make a convincing argument why they might, or should. And they could do the same to TCEHY.

[muishin]

@tmdoherty I'd like to hear why nationalizing private businesses will be in the best interest of the CCP, especially when China runs 2 stock exchanges themselves and is trying to attract foreign and domestic investors in order to move away from investments concentrated in just real estate.

[tmdoherty]

@muishin Simple greed, combined with the power to do so. It's not a question of will this happen or not. The CCP has its fingers in all pies, and whether they formally nationalize a company is moot.

1) They can justify this as an attempt to address the horrendous wealth gap that has developed in China. "Robin Hood CCP steals from the rich and gives to the poor!"

2) Remember, government ownership of businesses is nothing new in China. The vast network of SOEs account for 50% of total industrial assets, and about 30% of GDP.

3) China is trying to attract foreign investors? Really? Then why do they forbid laowai capital from owning ANYTHING in China, including stocks? Why do they demand that laowai with capital invested in China just shut up and never say anything "disrespectful" about China at all? Why are they gradually pulling all Chinese companies back to the Chinese exchanges, which are basically more akin to the wild wild west in terms of financial reporting and auditing requirements? Essentially, the self-serving CCP oversees all this activity now, and as with everything else, they will deal with this not according to the law, but according to what suits them best.

4) That's not a viable plan to diversify away from real estate across sectors. Would it make YOU more secure with investing in Chinese stocks that only trade in China? What's different?

5) What do you do about the rampant RE development companies, who account for 30% of GDP, and who must keep developing new RE projects at break-neck speed just so they can make their interest payments? Do you tell them to slow down or stop, and risk them defaulting on debt and causing economic catastrophe?

C'mon. You simply can not. China is between a rock and a hard place.

[Moomoo22u2]

DIDI will be caught in purgatory. US based institutional investors will have no choice but to jettison these shares if DIDI doesn’t stick around on US based exchanges and DIDI will likely drift even lower because it is a heavily indebted company in need of a massive amount of public investment dollars much harder to come by in the US.

[tmdoherty]

@Moomoo22u2 Yeah. Delisting makes exactly no sense, unless you are a Stable Genius like Xi Jinping of course. DIDI is in deep trouble, and of course that's why the markets revalued the stock to an all-time low on Friday.

[Shaduc]

12/4 update from HK:
www.scmp.com/...
Beijing-based Didi will not qualify for a secondary listing, as its five-month-long listing in New York falls short of Hong Kong’s two-year minimum requirement for such a flotation. It is likely to seek a dual-primary listing in Hong Kong, if this happens before its US stocks are delisted. Such a listing will be subject to regulatory scrutiny on par with the US bourses, industry players said.

[SBau]

@Shaduc Seems like "good" news!?

[Prudent Finances]

Is there any risk of a takeunder to buyback the shares?

Or the company tanks the stock price on purpose in order to buyback the shares at a lower price?

[fanboi]

I'm not quite understanding why an NYSE ADR lisiting poses a threat to the privacy of sensitive (China) customer data. Is sensitive customer data disclosed during listing of a VIE?

[MagnetismCapital]

@fanboi it’s not, this is an example of childish Chinese culture (I.E respect for informal instructions based on a “suggestion” by regulators) and this is an attempt to restore face to regulators so they can say “look, DIDI is coming home, don’t disobey our informal non-specific “suggestions”

[Eagleriver]

The listing needs to be approved by the SEC does anyone know what that price may be for an approval?

[John Kass]

@Eagleriver It should be $14

[magdy1998]

it is better for every DIDI share holder to ask his broker about the legal regulations applied in similar case for any company asking for de listing of its shares from exchange

[Pisang]

So didi shares will trade on the Hong Kong exchange and current U.S. listed shares will covert to American depository shares ( ADSs). So why is everyone freaking out.

[Shaduc]

@Pisang the overall mkt is lofty.
Some bloomberg said today that only 10% are over valued

[rarted]

@Pisang it isn’t clear whether your receipts nor Cayman Islands’ governance laws guarantees the conversion.

It also isn’t clear whether your receipts would be available to trade OTC.

It also isn’t clear what Didi would be buying back, since you don’t own company shares, you own a receipt. They’d only need to buy back from the shell company in the Cayman Islands, and it isn’t clear whether your receipt guarantees that money gets funneled to the receipt owners.

And if that contract guarantees it, it isn’t clear whether there’s any legal recourse to enforce that contract. Or if it’d be worth the legal expenses.

[cegana]

@Pisang because unlike BABA it still has not listed on Hong Kong

[Godspeed Trader]

It's a good buy.

Reply: Yeah, a good bye.

I'm a buyer at $1.40

[A Contrarian]

There is no obligation and rationale to promise $14. Let them list on another exchange and let market decide the price. This is how it should work and happened to China Mobile.

[Pisang]

Who is buying all those DIDI shares that fearful U.S. investors are abandoning? Maybe the CCP or maybe even DIDI? Any shares they buy at $6 or less will not need to be bought at $14. I’m holding.

[Shaduc]

@Pisang CCP doesn't have to buy shares

[Pisang]

@Shaduc I know

[rarted]

@Pisang it seems smart money has unloaded all their shares to us, the dumb money, 9% is being held by institutions, 91% retail.

[Brucejfern]

Assume an IPO in Hong Kong and whatever DIDI shares are worth here. They can risk arb it but why would they pay $14.00? If there was any such belief today's trading action would not be what it was.

[Pisang]

@Brucejfern it’s not about belief. It’s about fear of the unknown.

[jimgcpa]

$14 isn't happening. Get real. Chinese do not care about reimbursing US investors.

[DKFord01]

What is your reasoning/ logic for believing they will offer $14 per share? Why will they not just let it go bust and screw all the USA investors?

[Dilantha De Silva]

@DKFord01 I am not saying they will offer $14 per share because they can (as far as I understand) look for other options as well. But if they indeed decide to redeem ADSs by paying a certain amount, then I believe DiDi will at least pay $14 because not doing so will only increase the regulatory pressure on them - this time from US regulators. Now that's the one last thing they would want amid all this chaos, don't you agree?

[Andreas1981]

@Dilantha De Silva You are not reasonable - there is no point for DIDI redeeming shares over the current share price. Why would any company buy own shares over the market price, come on - they would hurt all the shareholders in the process in any case. Your x ADRs will be just converted into x HKG shares and thats its. Nothing illegal of that. There probably will be OTC market in NYSE for the shares.

People are totally nuts thinking a company would bail their bad investments out (facepalm). The level of disscussion on SA has really plummeted in recent times.

[brightlake]

@DKFord01 The author are in moments of negative IQ. lol

[Baloney Sandwitch]

Didi is already listed in Mexico. I think the main issue is the VIE structure.

[JohnnyXY]

@Baloney Sandwitch LOL. They are listed in Mexico exactly through the VIE structure.

[Dr Dog]

I know this day will come when the first day of the company listed. As growing up China, knowing the system, scammers comes from there from top to bottom.