Beijing Asks Didi to Delist from New York Stock Exchange

Chinese regulators have asked Didi Global Inc. to delist from the New York Stock Exchange, in the latest move to control the country’s tech giants, Bloomberg reports, citing people with knowledge of the matter.

The report says the country’s tech watchdog wants management to take the company off the New York Stock Exchange because of concerns about leakage of sensitive data, quoting the people, who spoke on anonymity. They said the Cyberspace Administration of China, the agency responsible for data security in the country, has directed Didi to work out precise details, subject to government approval.

Proposals under consideration include a straight-up privatization or a share float in Hong Kong followed by a delisting from the U.S., the people added. If the privatization proceeds, the proposal will likely be at least the $14 IPO price since a lower offer so soon after the June initial public offering could prompt lawsuits or shareholder resistance, the people said. If there is a secondary listing in Hong Kong, the IPO price would probably be a discount to the share price in the U.S., $8.11 as of Wednesday’s close.

Deliberations continue and it’s possible regulators will backtrack on their request, the people said. Either option would deal a severe blow to a ride-hailing giant that pulled off the largest U.S. IPO by a Chinese firm since Alibaba Group Holding Ltd’s in 2014, the report said.

The move is in continuation of what started late last year. Didi has joined a host of other Chinese companies who got into the bad book of Chinese authorities. Alibaba, Ant Group and Tencent have all felt the full weight of the authorities in the tech crackdown designed to curtail the excesses of China’s tech industry.

Didi has grown to become the biggest ride-hailing company in the world, eclipsing Uber, after it purchased the American company’s  operation in China in 2016.

Didi’s trouble started when it made the decision to file for IPO with the New York Stock Exchange in July. In line with its recent reforms targeting its internet market, Chinese regulators quickly launched multiple investigations into the company. Alibaba, Tencent and others have received proportionate penalties according to the weight of their sins, and the regulator has some lined up Didi.

In July, Didi was restricted from registering new customers a few days after filing for IPO with the New York Stock Exchange, and eventually was removed from app stores in China.

While the delisting could be part of a package of punishments for Didi, the authorities are likely going to treat the ride-hailing giant the same way they treated others. The Ant Group, Alibaba and others received the government’s proposal for investment stakes in their companies that would be run by state-owned firms.

Bloomberg reported in September that Beijing’s municipal government has proposed an investment in Didi that would give state-run firms effective control. The investment could help Didi finance the repurchase of its U.S.-traded shares.

Didi is currently controlled by the management team of co-founder Cheng Wei and President Jean Liu, which received aggregate voting power of 58% after the company’s U.S. initial public offering. SoftBank and Uber Technologies Inc. are Didi’s biggest minority shareholders, according to Bloomberg.

But delisting from New York Stock Exchange wouldn’t cut all the trouble for Didi, the company will still have questions to answer at home.

“Even if Didi shifts its listing to Hong Kong, it will have to address the data security concerns that have drawn regulatory scrutiny. The company may have to give up control of its data to a third-party — again undercutting its price tag,” the report said.

However, Beijing’s move to delist Didi from NYSE could pose a big bilateral challenge to China. In the face of trade war between the US and China that has deteriorated over the years, such action could send a panic signal across.

“A withdrawal from U.S. bourses could stoke fears of an exodus of Chinese firms as Washington and Beijing quarrel about access to listed firms’ books,” Bloomberg said.

It is a concern that some officials in China are worried about. On Thursday, a senior Chinese regulatory official said such delistings would be a setback for relations with the U.S., while offering broad support for Hong Kong as an alternative venue.

The battle to protect private data has intensified in recent times, with both the U.S. and China enacting reforms targeting data-collecting companies. However, the two largest economies in the world have left room open for diplomatic solutions to their bilateral differences.

At home, China has been insouciant about the billions of dollars being wiped off its tech industry as a result of its tech crackdown, and the push for ‘common prosperity.’ But deteriorated relationship with the U.S. has broader consequences that may very much depend on how Beijing handles Didi’s NYSE listing.