As China tightens overseas listing rules, Didi shares fall 20%

After Chinese regulators announced an investigation into the ride-hailing app that raised more than $4 billion in a New York IPO last week, Didi’s market value has shrunk by one-fifth.

Before the opening of the New York market, China said it would tighten restrictions on overseas listings, which caused investor anxiety in New York and jeopardized lucrative investments. Chinese company’s pipeline Passionate about raising funds on Wall Street.

The State Council, China’s top government agency, stated that it will take action to strengthen the protection of sensitive data on overseas listings and “consolidate the information security responsibilities of overseas listed companies.”

“This is an instruction from the highest level,” said Bruce Pang, head of research at the investment bank Huaxing Capital. “Not only the pattern of the Chinese market, but also its regulatory framework may undergo tremendous changes.”

Pang added that the new regulations may bring a long waiting period for any company wishing to go public overseas, which “will dampen investor sentiment, depress the valuation of US IPOs, and make it more difficult to raise funds in New York.”

Dealogic’s data shows that in the first half of 2021, 34 Chinese companies raised a record US$12.4 billion in New York. The data also shows that Wall Street investment banks received record windfall income of nearly US$460 million during this period.

Didi led the decline in the Chinese stock market in New York, hitting a low of $11.58 in early trading, a 25% drop, and then closed down 20% to $12.49. The company sold its shares for $14 last week.

The US-listed ADR (USD) line chart shows the beginning of Didi’s roller coaster in the US market

Due to the July 4th holiday, the market was closed on Monday. This trading session was the first opportunity for investors to react to the order of Didi to remove its apps from the Chinese market on Sunday. CAC accused Didi of violating laws regarding the collection and use of personal data.

On Monday, CAC also launched an investigation into Full Truck Alliance, another Chinese company that recently went public in the United States. FTA’s share price fell 7%; Baidu and both fell 5%, and Alibaba’s share price fell 3%.

Didi stated that it will “work hard to rectify problems, improve risk prevention awareness and technical capabilities, protect user privacy and data security, and continue to provide users with safe and convenient services.”

The group added that “it is expected that the delisting of the application may adversely affect its revenue in China”.

A person close to Didi said that CAC had advised the company to postpone its IPO a few weeks before it went public in the US until its data security was reviewed. Didi said on Monday that it “did not know” the decision to intervene by the regulator before the IPO.

Supplementary report by Sun Yu and the Christian Shepherd in Beijing.

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