Didi Global (NYSE: DIDI), a Chinese ride-hailing company, announced on December 2 that it will begin work on delisting from the New York Stock Exchange and will seek a listing in Hong Kong after receiving approval from its board.
The company says it will hold a shareholder meeting “at an appropriate time in the future” to vote on the decision.
According to Reuters, China’s Cyberspace Administration of China has asked Didi’s top executives to delist from the United States due to data security concerns, as reported on Nov. 26.
Didi Global is about to embark on a long and perilous journey to Hong Kong
Didi Global’s path to Hong Kong may be paved with good intentions, but that won’t make the journey any easier. Under pressure from Beijing, China’s $38 billion ride-hailing company is abandoning its New York listing in favor of one in the Asian hub. A take-private would be expensive, and migrating American depositary receipts could be difficult. Didi will also have to navigate Hong Kong’s more stringent IPO requirements.
It will be deeply embarrassing for boss Cheng Wei to flee New York just months after listing there, but it is necessary and prudent. Despite opposition from cybersecurity watchdogs, Didi made its debut in June. Since then, a regulatory barrage has resulted in its apps being removed from domestic digital stores and new user registrations being halted. Leaving Broad Street should assuage officials’ fears that any sensitive data it holds could end up in the hands of US authorities.
The company has yet to provide a detailed road map, only stating that its American depositary shares will be convertible on another “internationally recognized” exchange. Assuming Cheng opts for full privatization, a management-led buyout at the initial offering price of $14 per share – a 44 percent premium to current levels – would imply a total investment of $35 billion, assuming Didi’s strategic backers such as SoftBank Group’s Vision Fund and Uber join the consortium.
It’s difficult to see how the buyers can raise such financial firepower without lavish state-backed funding. Didi could theoretically relocate the ADSs to a location outside of the United States for a limited time. However, such transactions are uncommon and appear to be riskier than a buyout. Relocating to Hong Kong could be just as difficult. One of the reasons Cheng chose New York in the first place was because of the city’s stricter listing requirements. Previous talks with the bourse operator fell through due to concerns about the company’s mainland ride-hailing operations, some of which lack proper licenses, according to media reports and Web News Observer sources.
Furthermore, unlike New York, Hong Kong has traditionally limited the use of complex offshore structures to the relevant parts of a company’s business, rather than the entire business. Compliance may necessitate painful restructuring on Didi’s part. Shareholders should prepare for a roller-coaster ride.