China asks Didi to withdraw from the US stock market for security reasons. Chinese regulators have directed company VTC to develop a plan to withdraw from financial markets and become a private company, Bloomberg reported on November 26, 2021, being kept informed by people familiar with the matter. An unprecedented request that is likely to reignite fears over Beijing’s intentions against domestic tech companies.
The foundation of the regulator? Concerns about leaking sensitive data. The Chinese Cyberspace Administration (CAC), which opened an investigation in July on the issue, asked Didi to develop a specific plan on this issue that will be submitted for government approval.
Proposals being considered include a full privatization of Didi or an issue of shares in Hong Kong followed by a delisting in the United States. If privatization continues, shareholders will likely be offered at least the IPO price ($ 14 per share). A lower offer, so soon after the IPO, could lead to lawsuits or resistance from shareholders, Bloomberg reports. If there is a secondary listing in Hong Kong, the IPO price would likely be lower than that of the US stock ($ 8.11 as of Wednesday close).
Discussions continue and regulators could reverse your request. Such a privatization would deal a blow to the VTC giant, which carried out the largest US IPO by a Chinese company since Alibaba in 2014, recalls Bloomberg. Didi continued this process despite repeated requests from Beijing asking it to ensure the security of its data beforehand. The Chinese authorities quickly launched several investigations into the company and developed a series of sanctions.
China steps up its control
This exit from the New York Stock Exchange may be part of a broader set of sanctions issued against Didi. The Beijing municipal government has proposed an investment in the company that would give the government effective control of the company. Such an investment could also help Didi finance the buyback of its US-listed shares.
VTC’s business is currently controlled by the management team, consisting of co-founder Cheng Wei and President Jean Liu, who received a total voting right of 58% after the IPO. SoftBank and Uber are Didi’s main minority shareholders, owning 20% and 12% respectively.
This gesture is part of a broader offensive led by China against its biggest tech companies. The government seeks to strengthen its influence and control over what these companies do. For example, Chinese authorities will now monitor all Tencent applications prior to launch, as well as updates to existing applications. One more measure that has been taken to monitor these companies as closely as possible.
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