Didi’s woes in New York mask deeper issues

Founder and CEO of Didi Kuaidi, Cheng Wei reacts during a session at the World Economic Forum (WEF) in the Chinese port city of Dalian September 10, 2015. REUTERS/Jason Lee/File Photo

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HONG KONG, May 4 (Reuters Breakingviews) – Didi Global’s (DIDI.N) troubles are accelerating. The Chinese ride-hailing group is now facing a US investigation into last June’s IPO. Growing regulatory pressure in the country, however, is dealing a bigger blow to aggrieved shareholders, including SoftBank’s Vision Fund (9984.T) and Uber (UBER.N).

The $9 billion company exposed both issues in this week’s annual report. It reveals that the United States Securities and Exchange Commission “investigated the offer” without giving further details. Didi, which is holding a vote next month on dropping its New York Stock Exchange listing, has been forced to put its proposed Hong Kong listing on hold amid dissatisfaction with Chinese regulators, sources told Reuters. IFR financial publication. This investigation could further delay a return to public markets.

New details on China’s latest efforts to rein in tech companies seem more concerning. Previous actions have already taken their toll: Just days after its public debut, China’s powerful cyberspace administration announced a review of its data security practices, banned the group from registering new users indefinitely, and demanded local app stores to remove more than two dozen Didi services. . Didi shares are 85% below the IPO price.

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A series of new policies covering information security, user privacy, cross-border data transmission and more have since come into effect. This prompted Didi to warn that its activities could be further restricted, incur significant compliance expenses and be exposed to new legal risks. The word “cybersecurity” appears more than 100 times in its annual report, compared to just three times in its IPO prospectus.

Authorities are also stepping up scrutiny of ride-sharing apps. In February, the Department of Transportation and other agencies released updated violations, including lack of proper permits and licenses, and violation of drivers’ labor rights and interests. Supervisory bodies have tightened regulations on monopolies, unfair competition, and how algorithms can also be used.

All of this raises new doubts about Didi’s carpooling business. Although its main unit in China made adjusted earnings before interest, taxes, depreciation and amortization of $134 million in the last three months of 2021, revenue fell 15% year-on-year. The company has warned that it may have to write down some or all of the $7.3 billion in goodwill, or about 30% of its assets, resulting from the purchase of Kuaidi and Uber China. Shareholders are likely to face a long and painful job of repairing Didi.

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– The U.S. Securities and Exchange Commission is investigating Didi Global over its $4.4 billion initial public offering in June, the company said in its annual filing May 2.

– China’s cybersecurity regulator announced an investigation into Didi in July and asked the company to suspend the registration of new users in the country. Additionally, 26 of its apps have been removed from local app stores.

– In addition, Didi announced in April its intention to organize a meeting of shareholders on May 23 to vote on its proposal to delist from the New York Stock Exchange. The company also said that in order to better cooperate with the cybersecurity probe, it will not ask to list its shares on another exchange before leaving the Big Apple.

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Editing by Antony Currie and Katrina Hamlin

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