When the Didi Global [DIDI] share price debuted on the New York Stock Exchange on 30 June, something wasn’t quite right. Despite the public offering realising $4.4bn to make it the biggest overseas listing of a Chinese business since Alibaba [BABA] in 2014, it was a downbeat affair. Company execs declined to ring the bell and the event wasn’t even celebrated on Didi Global’s own social media channel.
The stock has since faced significant headwinds. On Friday 2 July, less than 48 hours after the Didi share price opened at $14, the Cyberspace Administration of China (CAC) announced it had launched an investigation into the Chinese ride-hailing giant, according to Fortune. The agency said it suspected the company had violated data privacy and national security laws, and ordered it to stop taking on new users. By Monday, it had ordered all Chinese app stores to remove the Didi app and 25 other services related to the company.
Regulators weigh down the Didi share price
Didi’s muted launch reflected some cagey statements in its offering prospectus, which included a section titled ‘risks relating to doing business in China’, which suggested that the country’s current regulatory momentum meant Didi’s best efforts to comply might not meet the required standards.
According to the Financial Times, in the weeks before the IPO, the CAC had voiced concerns about sensitive information on Didi’s maps and urged it to delay its listing while it conducted an internal review — advice that went unheeded.
Even so, it was an extraordinary step for Beijing to scupper so publicly one of its most successful international companies. Since its foundation as Didi Dache by former Alibaba exec Cheng Wei nearly a decade ago, Didi has grown to virtually monopolise the Chinese ride-hailing market.
Five years ago, it even persuaded Uber [UBER] to leave China in exchange for an 18.8% stake in the company. But it has not enjoyed a smooth ride — notably when two of its drivers were convicted in 2019 for murdering female passengers and another was charged earlier this year with murdering a passenger by running him over following a dispute about a fare.
China tech sector woes
But Beijing’s intervention, which then escalated to China’s top executive body the State Council which is vowing new rules for overseas listings and stricter supervision of cross-border data transfers, has wider implications than its impact on Didi.
For a start, SoftBank’s [SFTBY] Vision Fund’s 20.1% stake in Didi is now worth just $7.8bn — a third less than the $11.8bn it paid two years ago. What will be of wider concern to the Japanese group is the uncertainty China’s proposed, but unspecified regulation brings to the rest of its Chinese tech stocks, which make up a quarter of the fund’s portfolio.
Valuation of Softbank's stake in Didi
Vision Fund had been enjoying a stellar year. In May, it reported a record profit of JPY4.02trn from a fourth-quarter investment gain on Korean e-commerce company Coupang [CPNG]. The fund had reportedly been planning to cash out on Didi when the firm went public, but seemingly changed its mind when its initial overinflated value began to correct downwards. Alibaba also makes up 43% of Soft Bank’s total investments, giving the Japanese company a huge exposure to China that it is now looking to rein in.
Certainly, it seems that Chinese authorities will not shy away from taking steps they see necessary to control the growth, wealth and influence of the tech sector. In November, Alibaba’s planned listing of its fintech affiliate Ant Group in Hong Kong and Shanghai was halted by regulators who summarily suspended its IPO and fined Alibaba $2.8bn in an anti-monopoly probe.
Ride-hailing stocks take SPAC IPO route
The mounting headwinds have seen investors become wary, as concerns over the international spread of data and the growing dominance of tech firms attract regulatory pressure.
“We have succeeded in executing our plan in some of the most challenging emerging markets. We are now ready to share our expertise and technology with the rest of the world” - Swvl CEO Mostafa Kandil
However, other ride-hailing options are available. SoftBank’s portfolio already includes Grab — founded in Malaysia in 2012, the company now spans across eight Southeast Asian markets — which recently announced a SPAC merger with blank-cheque company Altimeter Growth Corp [AGC].
Other upcoming SPAC IPOs also include Swvl [SWVL], a Dubai-owned bus-hailing service in Egypt, Kanya and Pakistan, whose upcoming flotation will follow its merger with Queen’s Gambit Growth Capital [GMBT], the first SPAC company led entirely by women. “We have succeeded in executing our plan in some of the most challenging emerging markets,” Swvl CEO Mostafa Kandil said. “We are now ready to share our expertise and technology with the rest of the world.”
Disclaimer Past performance is not a reliable indicator of future results.
CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.
*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.