The Didi probe increases regulatory risks for Chinese IPOs in the United States


Friday night in Beijing, just before the opening of trading in New York, Didi Chuxing received an alarming call from a little-known Chinese regulator.

China’s cyberspace administration, the internet watchdog, has warned the country’s response to the Uber group traveling in an hour, would be publicly ordered to plant signing users, according to a person familiar with the matter.

Shares of Didi, who three days earlier had has staged its initial public offering of $ 4.4 billion – the largest in the U.S. this year, fell 5 percent when investors digested the shock move. Investors are now ready for trading to resume Tuesday.

After also ordering Didi and two other Chinese companies that had been listed in the U.S. in recent weeks to be kicked out of Chinese app stores, the watchdog on Monday announced an investigation if the companies had violated the laws on the collection and use of personal data.

The events have called into question a planned New York multimillion-dollar pipeline lists from Chinese companies, when Beijing begins to manage broad legislation to ensure vast tracts of data considered vital to its national security.

Advisors at Chinese IPOs in the United States and investors have indicated China’s decision to wait until Didi has gone public to announce his investigation and asked if the company could have anticipated radical repression. “It seems to be targeted,” said a fund manager in Hong Kong. “People are wondering if this is Beijing angry about the great technology to go abroad.”

According to a person close to Didi, two Chinese regulators had recommended in the weeks before the list that the company delay the IPO until it had conducted a review of its data security.

The CAC and the China Securities Regulatory Commission have held separate discussions with the company to see if it should consider Hong Kong as alternative listing place in New York. As a part of China, Beijing considers Hong Kong safer than the United States.

But Chinese regulators did not have the legal authority to prevent the company from listing abroad.

The person said the data security investigation announced Friday, just two days after Didi listed it, and even the app store ban, was a “punishment” for ignoring regulatory warnings.

Didi did not immediately respond to the request for comment on the guide to delay his listing and data security review.

On Monday, the state tabloid Global Times was adamant that Didi posed a security risk to Chinese citizens ’data, particularly because it was part of Japan’s SoftBank and Uber.

“For companies like Didi.” . . China needs to more closely monitor its information security to protect both the security of personal data and national security, ”the newspaper said in an editorial.

In China, financial commentators have picked up the pace The road to Didi, arguing that the company had misjudged its potential exposure to last-minute regulatory complications.


Didi made a shortened IPO process, according to several people involved. The investor’s roadshow lasted only three days, while the library was “rushed,” according to one investor.

An executive at one of the Wall Street banks that sponsored the IPO said the schedule was short due to high demand and added that Didi could not anticipate regulatory news. The company and its banks had assurances from Chinese lawyers that “it was completely complete,” he said.

Didi said: “Prior to the IPO, Didi had no knowledge of the ACC decision.”

“The CAC appears to be under political pressure to act against Didi at this time,” said Xiaomeng Lu, director of geotechnology at the political advisory group Eurasia Group.

Volumes listed in China by country

The CAC invoked a cyber security review process that was introduced just over a year ago and had never been publicly used before. According to the procedures, companies should volunteer for a review of their supply and supply chains if their operations are of critical importance to national infrastructure. It is unclear if Didi requested a review prior to his IPO.

He said the CAC could have expected a new data security law to come into force in September, which would be a more appropriate tool to address its concerns about Didi.

The company near Didi said the company had not shared sensitive data with U.S. regulators. But the United States has long wanted access Checks of Chinese companies, with Beijing refusing on the grounds the documents were sensitive.

In December, the US government passed a law which gives Chinese companies that do not meet their control requirements a grace period of three years before being fired.

Some in the market have asked the repression timing. “Whatever the reason for China’s national security action, the U.S. perception is that Beijing is cynically threatening its regulatory blow to collapse after Didi sucked the money of U.S. investors,” they wrote Monday. in a note analysts at research group Gavekal Dragonomics.

Investment banks that have collected in record rights on Chinese listings in the United States have been concerned that regulatory pressure could stifle new IPOs. “This is now a risk factor that is not measurable, unpredictable and impossible to navigate,” said an executive at a Wall Street bank.

Yet some say the benefits still justify the risk for many companies. “Chinese names will always be IPOs in the United States if they can,” said the head of capital markets at a U.S. bank. “What they are afraid of is being forced to the IPO in Shanghai, and then they can’t get money from China.”

Reports from Hudson Lockett and Tabby Kinder in Hong Kong and Sun Yu, Christian Shepherd and Yuan Yang in Beijing

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