Didi shares fall 25% as China tightens overseas listings rules

Didi, the Chinese ride hailing app that raised over $4bn in an IPO in New York last week, lost a quarter of its market value on Tuesday in the first trading session after Chinese regulators announced an investigation into the company.

Just before the market opened in New York, the Chinese government announced it would tighten restrictions on overseas listings, endangering the lucrative pipeline of Chinese companies looking to raise capital on Wall Street.

In an announcement titled: “Cracking down on illegal securities activities”, China’s top government body, the State Council, said it would act to strengthen the protection of sensitive data related to overseas listings, and “consolidate the information security responsibilities of overseas listed companies”.

“This is direction from the highest level. The landscape of not only China’s market, but also its regulatory framework, could see dramatic changes,” said Bruce Pang, head of research at the investment bank China Renaissance.

Pang added that in the short term, the new rules may impose long waiting periods on any companies looking to list abroad which “will hit investor sentiment, depress valuations for IPOs in the US and make it more difficult to raise funds in New York.”

Thirty-four Chinese companies raised a record $12.4bn in New York during the first half of 2021, according to data from Dealogic, which also showed that Wall Street investment banks enjoyed a record windfall of nearly $460m in fees during the period.

Didi led the drop in Chinese shares in New York, touching a low of $11.58 in early trading after closing on Friday at $15.53. On its opening day, Didi’s shares briefly touched $18.01 before falling back.

Because of the July 4 holiday, the session was the first chance for investors to react to orders from the Cyberspace Administration of China (CAC) on Sunday for Didi to remove its app from the Chinese market because it had violated laws around the collection and use of personal data.

On Monday the CAC also declared an investigation into Full Truck Alliance, another Chinese company to recently list in the US, which saw its shares drop 19 per cent. Baidu and both fell 3 per cent, while Alibaba’s stock was down 2 per cent.

Didi said it “will strive to rectify any problems, improve its risk prevention awareness and technological capabilities, protect users’ privacy and data security, and continue to provide secure and convenient services to its users”. The group added it “expects that the app takedown may have an adverse impact on its revenue in China”.

The CAC had recommended in the weeks before the US listing that the company delay its IPO until it had conducted a review of its data security, said a person close to Didi. Didi said on Monday that it had “no knowledge” of the decision by regulators to intervene until after its IPO.

Additional reporting by Sun Yu and Christian Shepherd in Beijing.

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