US senators call for inquiry into Didi Chuxing’s US$4.4 billion IPO following China’s crackdown

Two members of the Senate banking committee said the SEC should review whether the ride-hailing giant misled investors
Didi’s shares have lost more than US$24 billion in market capitalisation since Chinese regulatory actions began last week

Banking & finance

Chad Bray

Published: 9:00pm, 9 Jul 2021

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Two members of the US Senate’s influential banking committee have called on the US Securities and Exchange Commission to conduct an inquiry into Chinese ride-hailing giant Didi Chuxing over its US$4.4 billion initial public offering last week.

Senator Bill Hagerty, a Tennessee Republican, and Senator Chris Van Hollen, a Maryland Democrat, separately said America’s top securities regulator should conduct an investigation into statements made by the operator of China’s dominant ride-hailing app ahead of its June 30 debut.

Didi’s shares have lost more than US$24 billion in market capitalisation since China’s top cybersecurity regulator said last week it was conducting an inquiry into the company’s data collection policies and regulators ordered app stores to pull Didi from their platforms. The company’s shares fell 5.9 per cent to close at US$11.21 on Thursday in New York, below their IPO price of US$14.

“American investors need confidence that the companies that list on US exchanges are not engaging in fraud and should have access to information on the risks posed by investing in foreign companies – especially those influenced by foreign governments,” Van Hollen said in a statement.

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Hagerty, a China hawk, said the SEC should examine whether Americans were misled, adding on his official Facebook page: “Communist China is not our ally. We must continue to hold them accountable.”

The Van Hollen and Hagerty statements were reported earlier by CNN and The Financial Times.

Didi’s IPO was the biggest by a Chinese company on an American bourse since e-commerce giant Alibaba Group Holding, the owner of the Post, raised US$25 billion in 2014.

This week the State Council, as the Chinese government’s cabinet is called, said it would undertake a sweeping overhaul of regulations governing how companies raise money both at home and overseas, with the country’s technology sector firmly at the centre of its efforts.

The announcement has reportedly prompted several Chinese companies to delay planned US listings and could hinder dozens more who have filed or were preparing to file for listings on American bourses.

It follows on from a broad crackdown on the high-flying technology sector, with China announcing a series of antitrust regulations against some of the industry’s biggest players and raising “national security” concerns about the data those companies control.

The rapid-fire action by Chinese regulators in the past week has unnerved American investors, particularly those who gobbled up shares of Didi, the Chinese equivalent of Uber Technologies.

It has also sparked at least two shareholder lawsuits and half a dozen more inquiries by US law firms seeking to file class-action lawsuits in American courts.

Chinese regulators are conducting a review of the data-collection policies of Didi’s dominant ride-hailing app in China. Photo: Bloomberg

“Didi will fully cooperate with the [People’s Republic of China] PRC government authority during the review,” the company said in a statement on July 2. “It plans to conduct a comprehensive examination of cybersecurity risks and continue to improve on its cybersecurity systems and technology capabilities.”

Didi has declined to make further comment in the days since that announcement.

The company’s biggest investors have also remained largely silent since the news first broke a week ago.

Softbank Group’s Vision Fund, the company’s biggest principal shareholder with a 20.1 per cent stake post-IPO according to Didi’s prospectus, and Tencent Holding , which owns 6.4 per cent of the company’s shares, declined to comment.

Uber, which sold its China business to Didi in 2016 and now holds an 11.9 per cent stake, did not respond to a request for comment on Friday.

Alibaba, another shareholder, did not immediately respond to a request for comment on Friday.

The full roster of the company’s investors may not be known for days or weeks as US reporting rules give investors up to 10 days to report if they own more than 5 per cent of a public company. Hedge funds have up to 45 days after their quarter ends to disclose their qualified holdings.

A number of exchange-traded funds (ETFs), index providers and investment managers also joined Didi’s shareholder ranks following the IPO.

“It’s definitely spooked investors. Uncertainty: investors definitely don’t like,” said Kevin Carter, chief investment officer and founder of the Emerging Markets Internet & Ecommerce ETF, known as EMQQ. “The Chinese government is a scary thing to US investors in general, which I think is unfortunate, but something I’ve learned to live with.”

Didi is EMQQ’s 10th largest holding, worth about US$50 million. The ETF acquired the shares on Tuesday, as it holds emerging markets internet companies that meet its criteria and fast-tracks IPOs of companies with a US$10 billion market cap after three days.

This article appeared in the South China Morning Post print edition as: US senators demand inquiry into Didi over IPO

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