Didi Chuxing experienced a record-setting initial public offering (IPO) and a spectacular fall from grace, all within one week. Now, the Chinese ride-hailing giant is facing a new problem: angry American shareholders. Investors has hit Didi with at least two lawsuits in the US after a Chinese government crackdown sent its shares plummeting.
Securities class action law firms filed lawsuits in federal court in New York and Los Angeles late on Tuesday, saying the company failed to disclose ongoing talks it was having with Chinese authorities about its compliance with cybersecurity laws and regulations, according to Bloomberg.
On 2 July, the Cyberspace Administration of China (CAC) said it would launch an investigation into the company, citing illegal collection of users’ personal data. Two days later, the internet watchdog ordered Chinese app stores to stop hosting Didi’s app. On Wednesday, Chinese media reported that the Didi function had disappeared from WeChat and AliPay’s dashboards.
Following the probe, Didi lost about $15bn of market value on Tuesday alone. At one point on Tuesday, its share price fell by 25% to $11.58, well below the $14 per share price offered at its IPO.
The company raised $4.4bn in its New York IPO last Wednesday, making it the second-largest listing of a Chinese company in the US, behind Alibaba’s $25bn float in 2014.
Reportedly, the company was advised by the CAC to halt its IPO and to review its network security, weeks before the company debuted in New York. However, under pressure from investors to raise capital, Didi decided to push ahead with its listing.
Afterwards, the company publicly announced that it had no knowledge of the investigation prior to its IPO.
The lawsuits named chief executive officer Will Wei Cheng, President Jean Qing Liu and several other executives and directors. Lead underwriters Goldman Sachs, Morgan Stanley and JPMorgan Chase, were also named as defendants, according to Bloomberg’s report.
Minefield of rules and regulations
China’s State Council recently announced a sweeping overhaul of its regulations on how companies raise money both at home and overseas, placing the country’s technology sector firmly in its crosshairs. The changes could hinder dozens of Chinese companies who have filed or are preparing to file for floats in the US.
Alibaba-backed medical data group LinkDoc is one of the first companies to shelve its plans for a US IPO following Beijing’s clampdown. The company said it would suspend its $211m listing, Reuters reported citing sources familiar with the matter.
Meanwhile, other Chinese regulatory bodies are also moving ahead with efforts to constrain Big Tech. On Wednesday, China’s State Administration for Market Regulation (SAMR), handed out 22 fines of half a million yuan ($77,000) to companies including Alibaba, Tencent and Didi Chuxing for a series of irregularities including several merger deals the occurred over the past decade.
Some of the fines were handed out for instances that took place before SAMR was formed in 2018, indicating Beijing’s commitment to rein in Big Tech’s power, even retrospectively.
Didi was fined by SAMR for not reporting its joint venture with BAIC Electric Vehicle at the end of 2018. In another instance, Didi’s electric vehicle (EV) unit was fined for taking a 15% stake in a joint venture with three enterprises in Hainan in 2019.
Separately, China’s central bank warned that more restrictions would follow to hamper anti-monopolistic behaviour among financial service providers. It said on Thursday that measures applied to Alibaba’s Ant Group would also be imposed on other payment service companies, Reuters reported.
China suspended the planned $37bn listing of Ant Group in November amid growing concerns over banks using third-party technology platforms like Ant for underwriting loans amid fears of rising defaults and a deterioration in asset quality.
Regulators, led by the central bank, in April imposed a sweeping restructuring on the fintech giant, forcing it to turn itself into a financial holding firm and to cut links between its payments app, Alipay, and its other businesses.
“Monopolistic behaviour does not only exist in the Ant Group but also in other institutions,” Fan Yifei, vice governor of the People’s Bank of China, said during a media conference in Beijing.