Didi Investigation Increases Regulatory Risks of China’s U.S. IPOs

On Friday night in Beijing, just before the opening of New York, Didi Chuxing received a warning call from a little-known Chinese regulator.

The Internet regulator, China’s National Internet Information Office, warned that the country’s response to the ride-hailing group Uber will be within an hour. Publicly ordered to stop According to informed sources, registered users.

Didi shares three days ago Conducted a $4.4 billion initial public offering -As investors digested the shocking announcement, the largest US stock fell 5% this year. Investors are now ready to resume trading on Tuesday.

After ordering Didi and two other Chinese companies listed in the US in recent weeks to be removed from the Chinese app store, the regulator on Monday Announce investigation Whether the company violated the laws regarding the collection and use of personal data.

These incidents cast doubt on the planned multi-billion-dollar New York pipeline Chinese companies go public, As Beijing began to apply extensive legislation to protect large amounts of data deemed essential to its national security.

Advisors and investors in China’s US IPO pointed out that China has decided to wait until Didi publicly announces its investigation and asked whether the company can expect a full blow. “This seems to be targeted,” said a fund manager in Hong Kong. “People are asking if this is Beijing’s anger at large technology companies going abroad.”

According to a person close to Didi, a few weeks before the listing, two Chinese regulators had advised the company to postpone the IPO until its data security was reviewed.

The Securities Regulatory Commission and the Securities Regulatory Commission discussed with the company whether Hong Kong should be Alternative listing location To New York. As part of China, Beijing believes that Hong Kong is safer than the United States.

But Chinese regulators do not have the statutory power to prevent the company from listing overseas.

The person said that only two days after Didi went public, the comprehensive data security investigation and app store ban announced on Friday were “punishments” for ignoring regulatory warnings.

Didi did not immediately respond to a request for comment on the guidance on postponing the listing and data security review.

On Monday, the state-owned tabloid Global Times insisted that Didi poses a security risk to the data of Chinese citizens, especially because it is partly owned by Japan’s SoftBank and Uber.

“For companies like Didi… China should monitor their information security more strictly to protect personal data security and national security,” the newspaper said in an editorial.

In China, financial commentators caught Didi’s roadshow, Arguing that the company misjudged its potential risks in the complex situation of last-minute supervision.

According to several relevant sources, Didi has shortened the IPO process. According to one investor, the investor roadshow lasted only three days, while the bookkeeping construction was carried out “hurriedly.”

An executive from a Wall Street bank that sponsored the IPO said that due to strong demand, the timetable was short, adding that Didi could not anticipate the regulatory news. He said that the company and its bank have received assurances from Chinese lawyers that “it is fully compliant.”

Didi said: “Before the IPO, Didi didn’t know anything about CAC’s decision.”

“CAC now seems to be facing political pressure to take action against Didi,” said Lu Xiaomeng, director of geological technology at the political consultancy Eurasian Group.

China's listings by country

CAC invoked the cyber security review process introduced more than a year ago, which has never been used publicly before. According to the procedures, if the company’s operations are critical to the national infrastructure, the company should voluntarily review its procurement and supply chain. It is unclear whether Didi applied for a review before the IPO.

Lu said that CAC could have waited for the new data security law to take effect in September, which would be a more appropriate tool to address its concerns about Didi.

The person close to Didi said that the ride-hailing company did not share any sensitive data with US regulators.But the United States has long wanted to get Audit of Chinese companies, Beijing refused on the grounds of sensitive documents.

In December, the U.S. government Passed a law This gives Chinese companies that do not meet its audit requirements a grace period of three years before delisting.

Some market participants questioned Timing of suppression“Regardless of the reason for China’s national security actions, the U.S. view is that after Didi wicked away U.S. investors’ cash, Beijing cynically set its regulatory crackdown at a time of decline,” research group Longzhou Jing News analysts wrote in a report on Monday.

Investment bank Charge record fees Concerns about China’s listing in the United States worry that regulatory pressure may stifle new IPOs. An executive of a Wall Street bank said: “Now, this is an unmeasured, unpredictable and unmanageable risk factor.”

However, some people say that for many companies, the rewards still justify the risks. “If possible, the Chinese name will still be listed in the United States,” said the head of capital markets at a U.S. bank. “What they are afraid of is being forced to go public in Shanghai, and then they will not be able to get capital from China.”

Reported by Hudson Lockett and Tabby Kinder in Hong Kong and Sun Yu, Christian Shepherd and Yuan Yang in Beijing

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