Chinese companies hoping to list in the US face a harder task in pitching their shares to prospective investors.
As Beijing probes Didi Global Inc (滴滴) — China’s version of Uber Technologies Inc — and two other firms that recently debuted on Wall Street, global equity managers are questioning if the regulatory threat posed by the Asian nation’s increasing efforts to control big data is a risk worth taking.
“The Didi situation reinforces the fact that China is annoyed by the flood of US IPOs [initial public offerings] by Chinese tech companies, and is attempting to slow the reception of these IPOs in the West,” said Hans Albrecht, portfolio manager at Horizons ETFs Management Canada Inc. “While Chinese names look like better value, they will suffer from this overhang for some time.”
Photo: Bloomberg
Beijing’s latest crackdown on the technology industry threatens to chill investor sentiment at a time when there are as many as 34 pending filings for US listings by firms based in China or Hong Kong announced this year, according to data compiled by Bloomberg. Such deals have been running at a record pace, with more than US$15 billion priced in New York IPOs so far this year.
Didi’s shares plunged more than 25 percent in US pre-market as trading resumed after Monday’s holiday. That follows a 5.3 percent drop on Friday after China said it is starting a cybersecurity review of the ride-hailing company.
Chinese regulators asked Didi as early as three months ago to delay its landmark US IPO because of national security concerns involving its huge trove of data, people familiar with the matter have said.
The message was conveyed in meetings between the company and regulators including the Cyberspace Administration of China, the people said, asking not to be identified discussing a sensitive matter.
The Wall Street Journal reported earlier that officials were worried about Didi’s data potentially falling into foreign hands as a result of the greater public disclosure associated with a US listing.
Didi ultimately went ahead with the offering, raising US$4.4 billion in the second-largest debut by a Chinese corporation in US history. Two days later, the watchdog announced a cybersecurity probe of the firm and banned it from adding new users.
The clampdown, which also ensnared two other Chinese tech companies — Kanzhun Ltd (看准), the owner of an online recruitment platform, and Full Truck Alliance Co (滿幫), an Uber-like trucking start-up — that recently listed in the US, raises questions about what Didi knew of regulators’ intentions before the IPO and whether it should have been more forthcoming in disclosures to investors.
“The Chinese government could have stopped the IPOs from happening, like how they did with Ant [Group Co] (螞蟻集團),” said Sharif Farha, a Dubai-based portfolio manager at Safehouse Global Consumer Fund. “Instead, they allowed global investors to take pain, and consequently have broken trust with a lot of foreign investors. While we did not participate in any of these listings, we would imagine that several funds would consider exiting.”
One company poised to test sentiment soon is Hong Kong’s on-demand logistics and delivery firm Lalamove (貨拉拉). It last month filed confidentially for a US IPO, people with knowledge of the matter have said, and is seeking to raise at least US$1 billion.
The latest crackdown is “very bad news for these Chinese companies’ image abroad,” said Ipek Ozkardeskaya, a senior analyst at Swissquote Group Holdings SA. “It’s a terrible hit to foreign investor appetite.”
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