China's Didi to delist in New York
China ride-hailing platform Didi, which has traded poorly ever since being targeted by regulators in the wake of its IPO in June, plans to delist from the New York Stock Exchange and relist in Hong Kong.
The company said in a statement on its Weibo account that the delisting process would start “immediately.” Didi added in a filing that it had won board support for the move, provided its American Depository Shares (ADS) “will be convertible into freely tradable shares of the company on another internationally recognized stock exchange at the election of ADS holders.”
The board also authorized the pursuit of a listing of class A ordinary shares on the main board of the Hong Kong Stock Exchange.
As of midday on December 4, Didi was down more than 16% at $6.54. The company is trading at a 53% discount to its IPO price with a market capitalization of approximately $31 billion. Its peak private market valuation was $60 billion.
Didi pressed ahead with its IPO even as regulators called for patience. Two days after its debut, the Cyberspace Administration of China blocked new user registrations and downloads, saying the company had violated rules on data collection. Guidelines were later introduced requiring companies that collect large amounts of consumer data to undergo a security check before listing overseas.
At the same time, regulatory action is gradually gaining pace in the US that may see Chinese companies removed from local bourses if they don’t comply with accounting rules that are rejected by the Chinese authorities.
Didi denied reports in the summer that a take-private was discussed as a means of appeasing regulators and compensating investors, but two sources familiar with the situation told AVCJ the option was on the table. “In the end, it was determined that the investors would probably sue everyone involved, and nobody wanted to inherit a lawsuit or many lawsuits,” one source said.
A host of larger US-listed Chinese companies have added secondary listings in Hong Kong. Once this has been achieved, there is the possibility of shifting the location of primary listing and deregistering in the US – a process that involves inviting investors to migrate to Hong Kong rather than recruiting a private equity backer to help take out those holdings.
Deregistration in the US is conditional on having fewer than 300 shareholders in the US or having an average daily trading volume in the US that represents 5% or less of global trading volume. Hong Kong would treat an issuer as having a permanent dual primary listing if more than 55% of the worldwide trading volume by dollar value during the most recent financial year takes place locally.
There are other circumstances under which a company may be delisted and deregistered in the US without establishing a new primary listing. Lengthy compliance processes are tied to these actions. Otherwise, they must pursue take-private transactions, open-market purchases, or public tender offers, which require shareholder votes and fairness opinions on pricing.
Didi claims to be the world’s largest mobility technology platform. As of March, it operated in 4,000 cities, counties and towns in 15 countries, with a fleet of 15 million drivers serving 493 million annual active users. The platform facilitated 41 million average daily transactions in the 12 months ended March with gross transaction value of RMB341 billion ($53.4 billion).
In China, the shared mobility business encompasses ride-hailing, taxi-hailing, chauffeur services, and carpooling. Didi also provides car leasing services and discounted fuel and repairs to drivers, runs the country’s largest electric vehicle (EV) charging network, and has an autonomous driving unit that sources traffic data from the shared mobility fleet and uses it to develop algorithms.
Didi posted RMB141.7 billion in revenue last year, down from RMB154.8 billion in 2019, largely due to COVID-19 sapping demand. Over the same period, its net loss widened from RMB9.7 billion to RMB10.6 billion. China mobility is responsible for over 90% of revenue. Adjusted EBITDA for this business has been positive since 2019.
SoftBank Vision Fund 1 is the largest investor in Didi with a 20.1% stake. Other backers include Uber, Tencent Holdings, Alibaba Group, Apple, China Merchants Bank, China Life Insurance, Mubadala Investment, Silver Lake, and Temasek Holdings.
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