Didi Buckles Under Regulatory Pressure, Opts To Delist From NYSE: What This Means For Investors

After the specter of delisting loomed long, DiDi Global Inc. DIDI finally succumbed to regulatory pressure and announced delisting from NYSE.

What Happened:  Chinese ride-hailing giant announced in a statement late Thursday its board has authorized the company to undertake necessary procedures and file relevant applications for delisting its ADSs from the NYSE.

Life has come a full circle for DiDi, which had a high-profile debut in the U.S. in late June. The company went public in the U.S. by offering 316.8 million shares at $14 apiece, raising about $4.4 billion.

Since then, the shares have not taken off and continued under pressure as the Chinese regulatory crackdown hung like a Damocles' sword over it.

Chinese regulators eyed DiDi's U.S. listing as willful disobedience as the company had gone ahead despite opposition from Beijing. In China, multiple regulatory bodies began probing into its operations and carrying out investigations at its offices.

Regulators have taken exception to DiDi's data practices and banned the company's app from app stores. Officials were also contemplating levying fine on the company.

In late July, when speculations were rife about DiDi going private, the company said that the rumors weren't true. Earlier this week, a  Bloomberg report citing sources said, China was considering plugging a loophole that allowed big Chinese companies to make a beeline to overseas markets through the variable interest entity route.

Related Link:  China's Latest Ride-Hailing Regulations Likely To Spell Trouble For DiDi, Alibaba

What's In Store For Existing Shareholders:  DiDi said in its recent statement that it would ensure that ADSs will be convertible into freely tradable shares on another internationally recognized stock exchange at the election of ADS holders.

DiDi plans to organize a shareholders meeting to vote on the above matter at an appropriate time in the future, following necessary procedures. The board has also authorized the company to pursue a listing of its Class A ordinary shares on the Main Board of the Hong Kong Stock Exchange.

Readthrough For Rest Of U.S.-listed Chinese Companies:  U.S.-listed Chinese companies, especially the big tech companies, are already under regulatory scrutiny. The effect is there for all to see. Most of these stocks have now lost over half of their market capitalization, hurt by the regulatory overhang.

Alibaba Group Holding Limited BABA was the first high-profile Chinese company to face the backlash in late 2020 following comments from its flamboyant founder Jack Ma regarding excessive government regulation. The regulatory net then widened to include other Internet and for-the-profit education companies.

The DiDi development is likely only to worsen sentiment toward these stocks. The Bloomberg report suggested that those already listed might be required to make adjustments to make their ownership structures more transparent to facilitate regulatory reviews, especially in sectors off-limits for foreign investment.

Related Link:  Why These 2 Alibaba Analysts Expect Muted Near-Term, Positive Long-Term Prospects

Price Action: In premarket trading, DIDI shares are up 6.28% at $8.29 on the last check Friday.

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