Wednesday, January 19

Didi’s early investors have a window to exit after disastrous IPO

The end of a lockdown period after a re-listing is often a triumphant moment where pre-IPO investors can cash in and record profits. For Didi Global Inc., whose shares have lost more than half their value since going public, it’s a different story.

The regulatory crackdown on both sides of the world, culminating in the announcement of Didi’s plans to delist in New York, have weighed on the Chinese travel giant. It has lost $ 40 billion in market value since the June IPO, a surprising blow for what was expected to be one of the largest and most successful deals in 2021.

Certain directors and executives of companies that own shares, as well as companies that invested in Didi before the listing, have been bystanders to the collapse of the shares, restricted from selling for a customary period of 180 days after their public sale. On Monday, when that lockdown ends, they have a choice to make: sell now, potentially at a loss, or wait months for more clarity on Didi’s plans to list in Hong Kong.

“Once Didi is listed in Hong Kong, the dark cloud of uncertainty will largely dissipate, which would be positive for equities,” said Jason Hsu, founder and chief investment officer of Rayliant Global Advisors.

Shares of Didi fell 0.4% in New York on Thursday to a record low of $ 5.56.

Uber Technologies Inc., which owned 11.9% of the company just after the IPO in June, does not plan to sell immediately after the lockdown expires, according to a company spokesperson. Other early-stage investors are also likely to stay on the sidelines, according to analysts.

“Optically, it would look bad if insiders started to substantially reduce holdings with the delisting plan in the US and offer on HK in the new year, so I wouldn’t expect that too many were still being sold, “according to Matthew Kanterman, an analyst at Bloomberg Intelligence. “Insiders who sell a significant number of shares given all these uncertainties and risks would be a very bad message to the market.”

The blockade applies to directors, executives and holders of companies that own at least 90% of the total capital stock. SoftBank Group Corp. and Tencent Holdings Ltd. were listed as owners in June, while Didi’s directors and executives collectively held a 10% stake in the company, according to the IPO prospectus.

Didi, SoftBank and Tencent did not immediately respond to requests for comment.

Didi began preparations this month to withdraw from US stock exchanges following lawsuits from Chinese regulators who had opposed its listing in the US over concerns about the security of sensitive data. It will seek to be listed in Hong Kong and will ensure that the US shares are convertible into freely tradable shares on another internationally recognized stock exchange.

Meanwhile, the Securities and Exchange Commission is drafting a new law that forces foreign companies to open their books to American scrutiny or risk being thrown off the New York Stock Exchange and the Nasdaq within three years.

Didi’s migration to Hong Kong may offer investors an alternative, albeit a lengthy one. Bloomberg News reported earlier this month that the company had begun laying the groundwork for withdrawing from the US and was aiming to submit documentation to begin trading in Hong Kong around March. Based on the typical process there, you could point to a summer listing.

© 2021 Bloomberg LP

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