Just when things seemed to be going well for ride-hailing company Didi, the Chinese government began its crackdown plummeting its valuation.
The world’s largest incorporation from China, Didi Chuxing provides ride hailing services. It formed in 2015 when Didi Dache and Kuaidi Dache merged.
It was recently listed in the New York Stock Exchange for a sale price of $14 each during the initial public offering (IPO), creating history by becoming the biggest listing for a Chinese firm in the United States after Jack Ma’s Alibaba.
The company has over 377 million active users and more than 20 million rides are arranged through the app every day.
Just when things seemed going good for the company, the Chinese government began its crackdown. The company’s ride hailing app was banned from platforms over allegations of collection of personal data.
The ban plummeted its stock price and the company lost valuation by billions overnight.
SEQUENCE OF EVENTS
The incorporation recently listed itself on the New York stock exchange market with a $4.4 billion IPO.
A few days later the Chinese authorities announced that the firm is under review and shall not not register new users. Presently only existing users can avail their services as their application was taken off the Chinese equivalent of play store as well.
Chinese Cyberspace Administration said that the company is under scrutiny for serious violations of the law in collecting and using personal information and that it will also be investigating other Chinese organisations whose parents are listed in the United States such as Softbank, Uber, Alibaba backed Kanzhun and Full Truck Alliance.
IMPACT OF THE ANNOUNCEMENT
After the regulator’s announcement, several investors sold off shares held that belonged to Didi and other Chinese companies.
Didi’s shares plunged by a solid 30% and its market capitalization declined by at least $17 billion, plunging its valuation lower than $57 billion.
Japan’s Softbank Vision Fund is the biggest investor of Didi and is being investigated as well after it raised nearly $1.6 billion the previous month.
Softbank has a stake worth 20% in the corporation that is roughly about $12 billion. After the announcement Softbank plunged by a record 5.4% in the Tokyo markets.
American investment firm Tiger Global who invested about $1billion in Didi, took a severe beating too.
Uber, which is Didi’s second largest shareholder and owns 15% stake in the company, witnessed a drop of 2% in its shares as well.
Alibaba group and several other companies also took a hit. Alibaba backed Kanzhun was down by 12% and Full Truck Alliance by 18%.
Since Didi’s app has been banned, declining demand and revenue trends are inevitable. This may force the organization into laying off employees and take up cost cutting measures.
If the investigation goes on for a long period, Didi’s shares may plunge further taking it to a point where investors will pull out on all fronts.
The lawsuits in the United States are just the cherry on the icing. If found guilty Didi could be forced to repay funds it raised in the NYSE and maybe get delisted altogether.
China’s crackdown on its own companies is costing its economy. Didi is not the only company to be facing such harsh times, several giants such as Alibaba have also faced scrutiny.
This sort of behavior is directly affecting investments and funding made into China. It may also lead to situations where Chinese companies may not be able to expand in global markets.
Chinese officials said the key reason for this is the growing concern for user’s data held by such giant tech companies. But the hidden reason is all hinting towards the Chinese government losing control. The establishment is worried about giving a free hand and power to huge corporations which could later backfire against the government.