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Didi and other US-listed companies have lost billions as a result of China’s tech crackdown.
Carlos Jasso/Reuters
Reuters, 6 July 2021
Didi Global Inc shares fell as much as 25% in pre-market trading in the United States on Tuesday, ahead of the company’s first session since Chinese regulators ordered the company’s app to be taken down days after its $4.4 billion NASDAQ IPO.
The Cyberspace Administration of China (CAC) ordered the ride-hailing giant’s app to be withdrawn from Chinese app stores on Sunday, following an official probe into the company’s management of client data.
After the CAC announced cybersecurity probes into their associated companies on Monday, other U.S.-listed Chinese companies, including Full Truck Alliance and Kanzhun Ltd, were poised to open lower on Tuesday.
Due to the July 4th holiday, the US stock market was closed on Monday.
Didi shares tumbled as much as 25% in pre-market activity on Tuesday, to $11.59, significantly below their debut price of $16.65 on June 30. Didi is expected to lose approximately $19 billion in market capitalization at that pre-market level.
The stock has dropped 20% by 1038 GMT.
“In terms of fundamental impact,” Sumeet Singh, Aequitas Research director and Smartkarma contributor, told Reuters, “that (share price decline) is a bit harsh in our view.”
“However, with some news sources claiming that Didi knew months in advance that a crackdown was coming, some people will begin to question the company’s governance as well.”
The Wall Street Journal reported on Tuesday, citing sources, that the company had been advised by regulators to postpone its initial public offering (IPO) and conduct a security audit of its network.
“And if the crackdown was actually planned months in advance, it would signal that it isn’t going away very soon, which could explain the sharp drop in stock prices,” Singh added.
Didi said on Monday that the app’s restriction will hurt its earnings in China, despite the fact that it would remain available to existing customers. It also informed Reuters that previous to the IPO, it was unaware of the probe.
According to Shifara Samsudeen, a LightStream Research analyst who also blogs for Smartkarma, “Didi’s app restriction would hamper its user growth while existing users of Didi’s app will have a certain level of reservation over using the company’s app owing to concern of compromising their personal data.”
“It goes without saying that Didi’s top line would be impacted.”
ACTIVE REGULATORY MEASURES
Full Truck Alliance’s stock was down 16 percent in pre-market trading, while Kanzhun’s stock was down more than 10%.
“I believe the recent Chinese regulatory steps against Chinese companies that have just listed in the United States may raise a few eyebrows in Washington,” said David Chao, global market strategist at Invesco, speaking at the Reuters Global Markets Forum.
“I don’t believe there will be a boycott of Chinese companies by American investors — many recently listed Chinese companies in the United States have performed admirably.”
Didi shares were sold for $14 each in the IPO, making it the largest Chinese business to list in the US since Alibaba raised $25 billion in 2014. As of Friday, the corporation was valued at up to $75 billion.
After discovering that Didi had improperly acquired customers’ personal data, CAC stated it has ordered app retailers to stop selling the app.
A significant drop in Didi stock would further erode investor trust, which had already been shaken by the disclosure of a probe into the ride-hailing company just two days after its debut on the New York stock exchange.
“I believe some investors were comforted by the fact that the listing was proceeding with the consent of the government, when we now know it was not,” said Dave Wang, portfolio manager at Singapore’s Nuvest Capital.
Didi’s initial public offering (IPO) was not attended by Nuvest.
Reuters
Kanzhun Didi Full Truck Alliance
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