Caught in regulatory scrutiny in China and the U.S. and amid fears of a potential delisting, shares of DiDi Global (NYSE: DIDI) are down 65% year-to-date.
Last week, the Chinese ride-hailing giant revealed in its annual filing that the Securities and Exchange Commission (SEC) contacted the company following its U.S. IPO (initial public offering) and made inquiries related to the offering. DiDi didn’t provide the exact details of the review, but stated that it is cooperating with the investigation, “subject to strict compliance with applicable PRC [People’s Republic of China] laws and regulations.”
A Controversial IPO
DiDi launched a $4.4 billion IPO on the NYSE on June 30, 2021. It was touted as the biggest U.S. offering by a Chinese firm since ecommerce giant Alibaba’s (BABA) debut in 2014. Shortly after the IPO, China’s cyberspace regulator announced an investigation into DiDi over concerns of violation of data privacy and national security laws. The app was subsequently suspended from app stores in China.
The news led to a major sell-off in DiDi’s ADRs (American Depository Receipts). DiDi’s U.S. listed shares have lost close to 90% of their value since its IPO.
DiDi and several other U.S. listed Chinese stocks have been under pressure for over a year as China investigated them for antitrust and data security concerns. That said, recently the Chinese government indicated that it may ease the pressure on its tech giants amid concerns of slowing economic growth.
Potential Delisting
Last month, DiDi announced that it would hold an extraordinary general meeting on May 23 for shareholders to vote on the voluntary delisting of its ADRs from the NYSE.
Further, the company stated that it would not apply for listing of its shares on any other stock exchange before the delisting of its U.S. ADRs, in order to “better cooperate with the cybersecurity review and rectification measures.”
Back in December 2021, DiDi stated it would make plans to delist from the NYSE and gear up for a listing in Hong Kong.
Several other U.S. listed Chinese firms face the fear of delisting as they fail to comply with the SEC’s requirement for access to audit reports.
Hedge Fund Activity
Currently, DiDi has a Moderate Buy consensus rating based on one Buy rating from Bernstein analyst Cherry Leung, who initiated coverage on DiDi in February. Leung’s DiDi price target of $6.20 implies 256.32% upside potential from levels seen early Monday.
Meanwhile, according to TipRanks’ Hedge Fund Trading Activity tool, confidence in DiDi is Positive, as hedge funds increased their cumulative holdings in DiDi stock by 1.6 million shares in the last quarter.
Closing Thoughts
DiDi is embroiled in investigations by both the Chinese and U.S. regulatory authorities. Given the uncertainty involved with its listing, it will be prudent for conservative investors to avoid the stock and wait for more clarity on the investigations.
Moreover, the company’s financial performance has also been poor, with Q4’21 revenue declining about 13% year-over-year. The top-line was impacted by DiDi’s ban from app stores in China and the impact of COVID-19 lockdowns in the country.
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