After winning shareholders' nod for a U.S. stock delisting, HONG KONG Reuters- Didi Global may have ensured its survival, but a quick return to growth won't be easy for the Chinese ride-hailer as it still faces regulatory scrutiny and COVID 19 has hurt the business.
Didi's U.S. withdrawal less than a year after its debut is seen as a way to appease regulators angered by its move to push ahead with a $4.4 billion IPO despite being asked to put it on hold while Chinese officials reviewed its data practices.
Didi's mobile apps have been removed from app stores in China and new user registrations remain suspended as part of the investigation. The company reported a 13% drop in fourth-quarter revenue last month, compared to a doubling in the first quarter of 2021 before the probe.
The cybersecurity review of China's Cyberspace Administration is yet to be completed and any penalties to be imposed are still to be decided, according to sources with knowledge of the matter.
They added that Didi's final penalty would have to be signed off by the central leadership, which is now grappling with more urgent issues such as a sharp economic slowdown and coronavirus outbreaks across the country.
One of the people said Didi's cybersecurity probe is not high on the agenda of the central leaders.
Some investors don't have an exit option on their shares, whose value has already shrivelled, due to delays in charting Didi's future. The ride-hailer's value is currently around $7.2 billion compared to $80 billion at the time of its listing.
Didi didn't respond immediately to a request for comment. The State Council Information Office and the CAC didn't do anything.
Didi, backed by SoftBank and Uber Technologies, said earlier this month that if it does not delist from the U.S. bourse, it wouldn't be able to complete Beijing's cybersecurity review, which has adversely affected its business.
On Monday, 96% of Didi's shareholders approved delisting its American Depositary Shares from the New York Stock Exchange. On or after June 2, it plans to file paperwork with the U.S. Securities and Exchange Commission.
Didi, which also offers delivery and financial services, was expected to list in Hong Kong by June. Such plans were put on hold indefinitely after failing to get the approval of Chinese regulators, according to a report by Reuters.
The regulatory action against Didi was part of a wider crackdown by authorities last year for violations of antitrust and data security rules, as well as other issues, targeting some of China's best known corporate names.
Didi announced in December that it would withdraw from the NYSE and pursue a Hong Kong listing in a stunning reversal just five months after its debut.
The delisting marks an essential but still small step for Didi to survive, said a person familiar with the company's thinking. It has to cut off its presence in the U.S. capital market as soon as possible to win the chance. China's strict zero-COVID rules have put several cities including Shanghai under lock down for months and forced many others to apply mobility controls, which is another obstacle facing Didi's revival of ride-hailing business.
China's ride-hailing market has been on a downward spiral since mid- last year due to COVID 19 outbreaks and tighter control on license compliance, with orders down 30% and 37% year-on-year in March and April, according to Bernstein analysts.
If life is back to normal, you need to spend more marketing, they wrote in a note last week.