Dusseldorf It’s quite an achievement to wipe out more than $60 billion in market valuation in ten months. Several actors have to work hard together or against each other. At the Chinese travel agency Didi, investors were able to observe how this works – and draw corresponding conclusions for future investments for Chinese tech stocks.
Hardly conceivable with what euphoria Didi Global started on the New York Stock Exchange at the end of June last year and placed papers worth 4.4 billion dollars there: The shares of the company, which was already making losses at the time, were sold for 14 dollars. The price shot up more than 28 percent on the first day of trading, taking the market cap to nearly $80 billion.
At the time, it was known that Chinese companies listed in the US had doubts about the transparency of their balance sheets. At the time, nobody knew that the Beijing regulators had serious concerns about Didis’ IPO in New York.
Among other things, it was about data security. The problem only became clear a few days later, when Didi was banned from the app stores and could no longer acquire new customers.
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US Securities and Exchange Commission determined
The US Securities and Exchange Commission (SEC) is now investigating the background to the IPO. What problems were already known before the IPO?
The events before and around Didi’s IPO show how opaque developments in China are for foreign investors. This is also due to the fact that the critical press cannot fulfill its control function in China.
The company will soon no longer be listed anywhere.
(Photo: Reuters)
The regulators act in the background as it suits them. They are controlled by the central government in Beijing. Chinese companies have to explain themselves far less, at least publicly. Perhaps that’s why their valuations are well below those of their US peers.
The dispute over the IPO and the intervention of the authorities have long had an impact on Didi’s core business: Although Didi is still the market leader in China, the order volume has fallen by 29 percent since June last year. Competitors such as Caocao from the Geely car group or T3 are only too happy to jump into the gap that is opening up in passenger brokerage, and their business volume is increasing.
In any case, Didi’s shares are still worth a full $1.57 today, and the market capitalization is less than $7.5 billion. The loss in value thus amounts to a whopping 90 percent. Whether Blackrock or Fidelity: Even the big players in the financial world have to cope with this as investors in their portfolios – not to mention Softbank, the main shareholder.
An IPO in Hong Kong has burst once
Didi’s departure from New York was supposed to be just a move to the Hong Kong Stock Exchange. But the Chinese Internet supervisory authority CAC also prevented this in March. The risk of data loss is too high – and management has still not been able to eliminate it satisfactorily.
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The papers of the tech company in the USA will initially be traded like a penny stock off the stock exchange. When an IPO in Hong Kong is pending, is completely unclear.
It remains difficult to judge who is responsible for the disastrous communication between Didi and the supervisors. In April, the regulator wanted to publish the penalty for Didi’s US IPO despite security concerns.
Shortly thereafter, however, according to media reports, she was called back by the central government because the penalties were not sufficient. The Chinese situation between the central government, regulators and companies remains confusing and is a permanent risk for a listed company.
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