Didi's fate in limbo as officials object to proposed penalty

Didi's American depositary receipts dropped 9 per cent to close at US$1.71 on April 21 in New York. PHOTO: REUTERS

BEIJING (BLOOMBERG) - Senior Chinese officials have pushed back on a set of proposed punishments for Didi Global submitted by the nation's cyber-security regulator, people familiar with the matter said, leaving the future of the troubled ride-hailing giant in limbo.

Didi has been in talks with the Cyberspace Administration of China (CAC) about a fine and other penalties after proceeding with an initial public offering (IPO) in the United States last June over the regulator's objections, the people said.

The agency had aimed to publish the results of that probe in April but central government officials told the CAC they are not satisfied with the proposed punishments and asked for revisions, the people said. The officials felt the remedies were too lenient, one person said.

That was why Didi suspended plans for a Hong Kong listing, the people said, adding that it was uncertain when that dispute could be resolved.

The result is that Didi, once the most celebrated start-up in China, faces yet more uncertainty as it prepares to depart New York bourses under orders from Beijing. The company, once worth about US$80 billion (S$109 billion), will 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 last week it had not applied to move to another exchange, surprising investors who anticipated a smoother transition.

Didi's American depositary receipts dropped 9 per cent to close at US$1.71 on Thursday (April 21) in New York, and have declined about 88 per cent since their trading debut on June 30.

Didi's shareholders - which include marquee names from Fidelity Investments to Blackrock - have so far refrained from public comment on the delisting. The Chinese company briefed several investors on the potential relegation of its stock and at least one of them was unhappy with the latest development, one of the people said.

Some investors could be forced to sell because their mandates do not allow them to hold unlisted shares. Japan's SoftBank Group, which can hold unlisted stock and ploughed more than US$12 billion into the company, has seen its 20 per cent stake fall from a peak of about US$16 billion to less than US$2 billion.

The settlement delay is another setback for Didi, the national champion that defeated Uber Technologies before becoming one of the biggest targets of a tech sector crackdown. Days after its US$4.4 billion IPO, the company was placed under a cyber-security probe and its services were taken off the country's app stores. The debut was so controversial it triggered an onslaught of regulatory actions constraining Chinese companies from raising capital overseas.

It is unclear what measures the CAC recommended. The ride-hailing giant has explored several alternatives, including hiving off data to a third-party Chinese firm and selling a stake to state-backed companies, Bloomberg News has reported. The China Securities Regulatory Commission said in a statement after last week's announcement that Didi made the decision to delist based on the market and its own situation.

The lingering uncertainty around Didi's fate is contributing to persistent questions over Beijing's longer-term intentions for a giant Internet industry it regards as having amassed too much wealth and power.

Follow ST on LinkedIn and stay updated on the latest career news, insights and more.