People familiar with the matter said that Didi Global Inc.'s top executives have been asked by Chinese regulators to devise a plan to delist from U.S. bourses, a plan that is likely to revive fears about Beijing's intentions for its giant tech industry.
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The country s tech watchdog wants management to take the company off the New York Stock Exchange because of concerns about leakage of sensitive data, the people said. They asked not to be identified discussing a sensitive matter. The Cyberspace Administration of China, the agency that manages data security in the country, has directed Didi to work out precise details, subject to government approval, they said.
Proposals include a straight-up privatization or a share float in Hong Kong, followed by a delisting from the U.S. If the proposal proceeds, it's likely that it's going to be the $14 IPO price, since a lower offer so soon after the June initial public offering could cause lawsuits or shareholder resistance, the people said. If there is a secondary listing in Hong Kong, the IPO price would probably be a discount to the share price in the U.S. $8.11 as of Wednesday s close.
Shares in SoftBank Group Corp. Didi's biggest minority shareholder, slid more than 5% in Tokyo.
The people said that it's possible that regulators will backtrack on their request. Either option would be a serious blow to a ride-hailing giant that pulled off the largest U.S.IPO by a Chinese firm since the launch of Alibaba Group Holding Ltd. in 2014. Representatives for Didi and the CAC didn't respond to requests for comment.
Didi sparked the ire of Beijing when it began with its New York stock offering this summer despite regulatory requests to ensure the security of its data before the IPO. Chinese regulators quickly launched several investigations into the company and have considered a range of unprecedented penalties, according to Bloomberg News in July.
It is possible that the delisting would be part of a package of punishments for Didi. China's municipal government has proposed an investment in the company that would give state-owned firms effective control, Bloomberg News reported in September. It is possible that Didi could finance the repurchase of its U.S.- traded shares.
Didi is currently controlled by the management team of Co-founder Cheng Wei and President Jean Liu, who received aggregate voting power of 58% after the company's initial public offering. SoftBank and Uber Technologies Inc. are Didi's biggest minority shareholders.
Even if Didi moves its listing to Hong Kong, it will have to address the data security concerns that have drawn regulatory scrutiny. The company may have to give up control of its data to a third-party - again undercutting its price tag.
After the world's largest ride-hailing company infuriated officials by ploughing ahead with its U.S.IPO, regulators have weighed a delisting for Didi since the summer, according to Bloomberg News. A withdrawal from U.S. bourses could lead to fears of an exodus of Chinese firms as Washington and Beijing quarrel about access to listed firms books. On Thursday, a senior Chinese regulatory official said such delistings would be a setback for relations with the U.S. while offering broad support for Hong Kong as an alternative venue.
Didi - once feted for defeating Uber in China - now has become a test case for a broader Chinese government effort to curb the power of internet titans. Xi Jinping's administration, keen to promote his vision of sharing the wealth or common prosperity, targeted an internet sector that accumulated vast wealth by operating on the periphery of the law, minted an unprecedented number of billionaires and enriched local and foreign investors in the process.
A state-directed privatization would be unprecedented for a private firm of Didi's stature, affirming that the Chinese government is bent on curtailing the power of the country's internet firms and unlocking the data and wealth hoarded during a decade of heady expansion. It would send a chilling signal to American investors, who are long used to investing freely in China's largest corporations, from Alibaba to Baidu Inc. and JD.com Inc.
Even after a crackdown on giants such as Alibaba and Tencent Holdings Ltd, Beijing's moves against Didi have been particularly harsh. The Cyberspace Administration of China saw Didi's IPO decision as a challenge to the central government's authority, which led to the CAC, the Ministry of Public Security, the Ministry of State Security and several other agencies initiating on-site inspections at Didi's offices in July.
It's been ensnared by the probes into data security and the way it treats its millions of drivers. Beijing is considering reasserting state control over a company that used to operate in a legal gray zone, according to Bloomberg News.
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