Chinese giant Didi’s plan to take its shares off the New York Stock Exchange marks the end of Chinese IPOs in the US.
Chinese ride-hailing giant Didi Chuxing’s announcement that it will delist its shares from the New York Stock Exchange sounds the death knell for a Chinese IPO in the US.
It marks the end of a warm relationship between Wall Street and the Chinese tech giant, which is under siege by officials in Beijing and regulators in the US.
Only five months had elapsed between Didi’s public appearance in New York in June and Friday’s word that she would list Hong Kong. During that time its market price has fallen 63 percent.
Didi’s move comes in the wake of widespread Chinese regulatory crackdown over the past year that has slashed major internet firms that have had a huge impact on consumer lives, including Alibaba and Tencent.
Following Friday’s announcement, heavyweight Chinese online retailers whose stocks are sold on the New York Exchange, such as Alibaba, JD.com and Pinduoduo, fell sharply.
Shares in Alibaba — which arrived on Wall Street to much fanfare in 2014, the start of a parade of Chinese firms listed in the Big Apple — fell to their lowest level in nearly five years as rumors spread that after Didi’s departure, Alibaba Could be next.
Technically, even if Didi Chuxing moved its listing to Hong Kong, holders of its shares in New York retain those bets. Their investments do not end just like that.
But “people are very fearful about regulations and the Chinese government,” said Kevin Carter, portfolio manager at EMQQ.
“And it’s really, really affected the sentiment. People are scared.”
Incidentally, on Thursday US market regulators announced the adoption of a rule that allows them to delist foreign companies if they fail to provide information to auditors.
The move is primarily aimed at Chinese firms, and requires them to disclose whether they are “owned or controlled” by the government.
Securities and Exchange Commission Chairman Gary Gensler said, “While more than 50 jurisdictions have acted … to allow the necessary oversight, two historically have not: China and Hong Kong.”
NS Global Times, a newspaper close to the Chinese Communist Party, criticized the new US regulation in an opinion piece on Friday.
“If the US sets unequal conditions on national security for competition between the two countries by demanding that Chinese listed companies be handed over to audits to spy on China’s internal situation and access sensitive data acquired by Chinese companies, If huge quantities can be stored, China will not accept that,” the unsigned piece said.
Many of these New York-listed shares are not held by private citizens but with institutional investors.
“Some funds may only have shares traded on US markets,” said Gregory Volokhin, president of Meishart Financial Services. “That’s what’s putting pressure on the stocks.” And for many market watchers, Didi, which has been described as China’s answer to Uber, won’t be the last Chinese tech giant to be delisted from New York.
“This is not typical of Didi because over the months we have seen the Communist Party tightening its grip on companies,” said Mr. Volokhin.
Shortly after Didi went public in New York, reservation platform Full Truck Alliance and job-search site Kanjun were investigated by China’s cybersecurity watchdog.
The Chinese government has also tightened rules on companies that provide private education to families. Due to this, companies listed in New York have suffered.
A total of 248 Chinese companies are listed in the United States with a combined market capitalization of $2.1 trillion, according to data from a US government agency in May.
“After an active start to the year, Chinese companies have stopped exploiting the US IPO market since June, due to regulatory and policy constraints in both countries,” said Renaissance Capital strategist Matthew Kennedy.
This week, Spark Education, a major Chinese online small-class teaching firm, withdrew its planned IPO in the US.
“The way things are, one can say that there will be no more new Chinese IPOs and those that are in the pipeline will be withdrawn one by one,” Volokhin said. Renaissance Capital says it has 35 companies in that pipeline.
In leaving the US market, Chinese companies are leaving an investor base like no other in the world – with $52.5 trillion in assets under management, compared to $7.1 trillion in China, a study last year by McKinsey & Co. As per, a management consultant. Strong.
Carter said this political pressure on Chinese companies creates a strange situation in which Chinese tech stars are falling on the stock market, but not because of their earnings reports.
“And these companies are still making profits. And then those profits are still growing,” he said.
“The revenue growth for the year is over 30 per cent. Not for every company, but a little bit collectively. No matter where the stock is, no matter where the stock is traded, it is still the case,” he said.