6 Minutes by,,,,,,,, Read Reuters, HONG KONG, July 5 – Even seasoned investors were taken aback by the disclosure of an inquiry into ride-hailing company Didi just two days after its $4.4 billion New York stock market debut. While the Cyberspace Administration of China (CAC) did mention some of the regulatory risks to Didi’s operations in its initial public offering (IPO) prospectus, there was no indication that the CAC would begin investigating the company and prohibit it from accepting new users while the investigation was underway. Didi stated on Monday that it was unaware of the CAC investigation, which was announced on July 2 and knocked its stock down by as much as 10% before its IPO. Due to the US holiday, the stock closed down 5.3 percent and will not trade on Monday. The CAC ordered Didi’s app to be deleted from Chinese app stores two days later, claiming the business had improperly obtained users’ personal data. “Prior to the IPO, Didi was unaware of the CAC’s decisions, which were announced on July 2 and 4, 2021, about the cybersecurity review and suspension of new user registrations in China, as well as the removal of the Didi Chuxing app from Chinese app stores,” Didi said in a statement to Reuters. Six fund investors who had visited Didi’s IPO roadshow, including two who were assigned stock in the offering, were caught off guard when they learned of the order to remove the apps from sale. The CAC news, according to one hedge fund source who asked not to be identified because he was not authorised to speak to the media, was strange and unexpected. It happened so shortly after the initial public offering. The CAC stated that its action was taken to defend national security and the public interest, but investors were concerned that the timing would put a pall over ambitions by other Chinese tech companies to list in the US or raise capital in international markets. The move was seen as an increase in pressure on Chinese internet firms, which began with the cancellation of a $37 billion IPO planned by Alibaba fintech unit Ant Group late last year. “The (Chinese Communist) Party has previously targeted Ant Group, which was considering an IPO and had to cancel it,” Ryan Fedasiuk, a research analyst at Georgetown’s Centre for Security and Emerging Technology, said. “However, because this step is retroactive, it effectively punishes investors who participated in a completed IPO. Just days after its public debut, the CAC began an investigation and suspended Didi’s presence on Chinese app marketplaces “Added he. Didi warned on Monday that the order to delete its app from Chinese shops could affect revenue. “It caught everyone off guard,” said Edison Pun, senior market analyst at Saxo Markets, “but periodic antitrust action is what we can anticipate from tech names.” “The suspension (of Didi’s app download) will surely affect investment confidence because it’s only recently listed on the American market, and investors will need time to adjust to valuation,” Pun added. DIDI’S ‘NEW JOURNEY’ According to Reuters, Didi is also being investigated by China’s State Administration of Market Regulation (SAMR) antitrust watchdog over whether it utilized anti-competitive activities to unfairly force out smaller rivals. The SAMR investigation is also looking at whether its ride-hailing business’ pricing methodology is clear enough. Didi, which controls the majority of China’s ride-hailing business, stated at the time that it would not comment on rumors. Didi began roadshows and pre-deal investor education meetings and calls on June 11 and listed in New York on June 30. After investors balked at the pace and profitability of Didi’s expansion, the IPO valued it at $67.5 billion, down from the $100 billion it had hoped for early this year. Didi co-founder Jean Liu, senior vice president Stephen Zhu, and head of capital markets David Xu led most of Didi’s roadshows, according to sources who attended the briefings. They largely talked on Didi’s operations and business growth. They said that, except from what was disclosed in Didi’s prospectus, there was little information concerning regulatory issues provided at the briefings. Didi did reference China’s new Data Security Law, which is set to take effect in September, in its IPO prospectus, stating that it may necessitate changes to its business operations. Didi made its debut with little fanfare, which is unusual for a Chinese company. “We did not ring the bell or publicly celebrate (the listing) since the listing is not the conclusion, but the beginning of a new journey,” founder Will Cheng and Liu said in a message to Didi employees on Wednesday. “That means we have to be more open and honest, and we have to take on more societal obligations and expectations,” according to a copy of the letter seen by Reuters. A request for comment on the letter went unanswered by Didi. The CAC action, according to Jonas Short, head of Everbright Sun Hung Kai’s Beijing branch, raises fears of more to come. “The consequences of the SAMR probe, which Didi stated in its prospectus, are yet unknown. Fines from the SAMR side are still a possibility “Short said. Julie Zhu, Kane Wu, and Scott Murdoch reported from Hong Kong; Sumeet Chatterjee and Alexander Smith edited the piece./n
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