REUTERS: Didi Global Inc’s stock continued to fall on Wednesday after China ordered the app to be withdrawn from app stores as part of a larger crackdown on Chinese companies with foreign listings. The stock was last down 5.1 percent in its fifth day of trading as a US-listed firm, roughly 29 percent below its US$16.65 offer price.
Beijing announced on Tuesday that it would boost up oversight of Chinese businesses listed offshore in order to crack down on illegal conduct and penalize fraudulent securities issuance, extending its operations beyond the tech industry.
On Wednesday, internet businesses such as Didi, Tencent Holdings Ltd, and Alibaba Group Holding Ltd were fined for failing to notify past merger and acquisition deals for clearance, as part of Beijing’s campaign.
Alibaba and Tencent Music Entertainment Group’s shares were down 1.1 percent and 2.5 percent, respectively, on the New York Stock Exchange.
According to Refinitiv statistics, Chinese corporations listing in the United States have raised a record US$12.5 billion in 2021, including Didi, the highest U.S. IPO by a Chinese company since 2014.
In a hint of investor concern over Didi, index publisher FTSE Russell also stated that if trading is halted in Wednesday’s session, it will not include Didi’s shares in its global equities indexes.
“The scenario is gloomy for Didi, but it may be even bleaker for Chinese companies trying to list in the United States,” said Samuel Indyk, senior analyst at uk.Investing.com.
“As the danger of investing in Chinese technology in the United States rises, so does the ability of Chinese tech businesses to acquire funds, making listings in the United States less appealing in the future.”
Last month, Republican Senator Marco Rubio called on the Securities and Exchange Commission to halt Didi’s IPO https://bit.ly/3hMI89E. because Chinese auditors are not allowed to undertake the same oversight that other publicly traded corporations in the United States are subjected to.
“It was risky and irresponsible to allow Didi, an unaccountable Chinese firm, to list on the New York Stock Exchange,” he stated on Wednesday. “Beijing’s latest action on the corporation only serves to highlight the hazards that Chinese enterprises offer to American investors.” S3 Partners, an analytics firm, warned of another increase in short-selling of U.S.-listed Chinese companies, citing a third straight day of selling of Didi, the ride-hailing behemoth. According to Ihor Dusaniwsky, S3’s managing director of predictive analytics, short interest in the group has fallen to US$43.5 billion from US$50.6 billion this year, and short interest as a percentage of float has fallen to 3.81 percent from 5.67 percent, reflecting a closing out of some positions that were in the red after a market rally in January and February. Shorts, or bets that stocks would fall in the future, are already profitable for the year, implying that hedge funds and other speculators can now gamble on greater losses following the clampdown announced last week. According to S3’s Dusaniwsky, the market can expect increased short selling and a decrease in “short-covering,” which refers to the liquidation of positions, usually those that are in the red. The Invesco Golden Dragon China ETF, which follows US exchange-listed companies with a Chinese headquarters, has dropped a third of its value from its February peak, implying that short sellers who bet against the index at that time should have benefitted. (Stephen Culp in New York, Medha Singh and Akanksha Rana in Bengaluru; Michelle Price contributed additional reporting; Shounak Dasgupta and Lisa Shumaker edited)/n
