Caixin
Jul 30, 2021 08:09 AM
BUSINESS & TECH

Didi Denies Report That It Plans to Go Private

Didi has been rattled by a cybersecurity review announced by Chinese regulators days after its NYSE debut.
Didi has been rattled by a cybersecurity review announced by Chinese regulators days after its NYSE debut.

China’s ride-hailing giant Didi Global Inc. denied a media report that is considering going private to appease Chinese regulators and compensate investors after a series of crackdowns wiped out a big chunk of its market value.

“The report about Didi’s privatization is not true,” Didi said in a statement on its official social media account. “The company is actively cooperating with regulators on the cybersecurity review.”

The Wall Street Journal reported that Didi has been in discussions with bankers, regulators and key investors about ways to resolve regulatory woes, including the option of going private. Citing people with knowledge of the matter, the newspaper said a take-private offer could be funded partly or mostly with money that Didi raised in its initial public offering (IPO) last month in New York. The price could be around or above the IPO price of $14 a share, the newspaper reported.

The report sent Didi’s stock soaring nearly 40% during premarket trading Thursday. The stock fell back after the company’s denial but was still 18% higher before the New York Stock Exchange opened.

Didi has been rattled by a cybersecurity review announced by Chinese regulators days after its NYSE debut. Citing data security concerns, regulators ordered the removal of all of Didi’s 25 mobile applications from app stores. On July 16, China’s Ministry of State Security and six other agencies stationed officials inside the Beijing-based company as part of a joint cybersecurity probe.

Didi’s stock plunged after the regulatory actions, losing nearly half of its IPO value on July 26. The stock traded around $10 Thursday morning. As the shares tumbled, a number of class action lawsuits were filed in the U.S. against Didi, with some alleging the company failed to disclose that Chinese regulators warned it to delay the IPO pending a security review.

A privatization plan would require approval from Didi’s major shareholders. After the IPO, SoftBank’s Vision Fund held a 20.2% stake in Didi as the biggest shareholder, followed by Uber Technologies Inc. with 12.8% and Tencent Holdings with 6.8%.

To clear the way for Didi to sell publicly traded shares, Softbank gave up its board seat and returned to its position as only a financial investor. Chinese regulators have raised concerns about large foreign ownership of Chinese companies. As China’s dominant ride-hailing provider, Didi owns a large amount of data on the country’s urban transportation and users. That means it’s necessary to ensure that foreign shareholders such as SoftBank and Uber can’t get access to the data, a person at a financial intermediary said.

Following the IPO, Softbank’s voting power fell by half to 10.7% while the founders and management gained more voting power. Co-founder and Chief Executive Officer Cheng Wei holds a 6.5% stake, and co-founder and President Liu Qing holds 1.6%.

In the second quarter, Didi began to accelerate the implementation of equity incentive plans for management and executives, resulting in share-based compensation expenses of $3.03 billion. After the IPO, Cheng, Liu and co-founder Zhu Jingshi together hold about 10%, but collectively they have 52% of the voting rights. All three became board members with the power to appoint or remove executive directors and nominate top executives, according to the prospectus.

The Didi crackdowns set off a regulatory landslide engulfing Chinese tech enterprises. Two other newly listed companies — truck-booking platform Manbang Group and the operator of recruitment platform Boss Zhipin — came under cybersecurity probes, while a number of companies considering overseas share sales suspended their plans.

Denise Jia contributed to this story.

Contact reporter Han Wei (weihan@caixinc.com) and editor Bob Simison (bobsimison@caixin.com)

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