Didi Global says it faces SEC probe related to US IPO; Chinese tech stocks slide

Didi Global said it is cooperating with SEC probe. PHOTO: REUTERS

WASHINGTON (BLOOMBERG) - The US Securities and Exchange Commission (SEC) is investigating Didi Global’s chaotic 2021 debut in New York, when the ride-hailing giant raised US$4.4 billion (S$6 billion) days before revelations of a Chinese probe into data security tanked the stock.

Didi’s shares slid 7 per cent in extended trading on Tuesday (May 3), deepening an 85 per cent loss since its initial public offering (IPO) in the summer of last year.

The Chinese company said it is cooperating with the probe, without providing further details. 

Other Chinese technology shares also dropped as the US regulator’s probe into Didi's IPO dampened investor appetite for the sector.  

The Hang Seng Tech Index dropped as much as 2.8 per cent, on track for its second day of declines.

The losses put to test a recent rebound in the battered sector. The gauge of Chinese tech firms rallied last week on the back of the politburo’s vows to support a healthy development of the industry. 

The probe adds uncertainty to the ride-hailing giant as it prepares to depart New York bourses under pressure from Beijing.

The troubles underscore the risk of investing in China tech, which still faces regulatory uncertainties despite Beijing’s repeated pledges to put an end to harsh crackdowns. 

Also weighing on the tech sector are holding cuts by some investors.

Meituan slumped as much as 5.9 per cent following news that Sequoia funds reduced stakes in the delivery giant. JD Health International tanked as much as 10.2 per cent as an exchange filing showed its chairman sold shares. Both were among the worst performers on the tech gauge.

US lawmakers had last year called for an investigation into Didi’s controversial IPO - the biggest by a Chinese firm since Alibaba Group Holding.

China’s cyber-security watchdog stunned investors by announcing its investigation into Didi two days after the listing, suspending the Internet giant’s main apps from domestic stores.

That precipitated a flurry of regulatory action against gig-economy and Internet companies, culminating in a decision to force Didi to delist from New York and float in Hong Kong instead.

That process is now suspended because regulators are pressing for more severe penalties, Bloomberg News has reported.

It is unclear when the SEC launched its own probe into the matter. Didi devoted just a few lines on the US investigation well into a 170-plus-page regular filing on May 2.

Spokesmen for Didi and the SEC declined to comment. 

“After our initial public offering in the United States, the SEC contacted us and made inquiries in relation to the offering,” the filing read. “We are cooperating with the investigation, subject to strict compliance with applicable PRC (People's Republic of China) laws and regulations. We cannot predict the timing, outcome or consequences of such an investigation.”

The company, once worth about US$80 billion, is grappling with the broader fallout after proceeding with its IPO despite regulators’ objections.

It will now likely see its stock traded over the counter on the so-called pink-sheets market, home to penny stocks and other riskier businesses.

Didi said in April that it had not applied to move to another exchange, surprising investors who anticipated a smoother transition. 

The company has been in talks with the Cyberspace Administration of China (CAC) about a fine and other penalties, Bloomberg News has reported.

But central government officials told the CAC that they are not satisfied with the proposed punishments and asked for revisions, people familiar with the matter have said.

Didi shareholders will vote on its delisting at a special meeting on May 23.

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