Didi lost a fifth of its market value after Chinese regulators announced an investigation into the ride-hailing app that last week raised more than $4bn in a New York IPO.
China sparked investor unease in New York before the start of trading when it said it would tighten restrictions on overseas listings, endangering the lucrative pipeline of Chinese companies keen to raise capital on Wall Street.
China’s top government body, the State Council, said it would act to strengthen the protection of sensitive data related to overseas listings, and “consolidate the information security responsibilities of overseas listed companies”.
“This is direction from the highest level,” said Bruce Pang, head of research at the investment bank China Renaissance. “The landscape of not only China’s market but also its regulatory framework could see dramatic changes.”
Pang added that the new rules may impose long waiting periods on any companies hoping to list abroad which “will hit investor sentiment, depress valuations for IPOs in the US and make it more difficult to raise funds in New York”.
Thirty-four Chinese companies raised a record $12.4bn in New York in the first half of 2021, according to data from Dealogic, which also showed that Wall Street investment banks scored a record windfall of nearly $460m in fees during the period.
Didi led the fall in Chinese shares in New York, touching a low of $11.58 in early trading — a 25 per cent decline — before closing down 20 per cent at $12.49. The company sold stock last week at $14.
With markets closed on Monday because of the July 4 holiday, the session was the first chance for investors to react to orders from the Cyberspace Administration of China on Sunday for Didi to remove its app from the Chinese market. The CAC alleged Didi had violated laws around the collection and use of personal data.
The CAC on Monday also opened an investigation into Full Truck Alliance, another Chinese company to recently list in the US. FTA’s shares dropped 7 per cent; Baidu and JD.com both fell 5 per cent, while Alibaba’s stock was down 3 per cent.
Didi said it would “strive to rectify any problems, improve its risk prevention awareness and technological capabilities, protect users’ privacy and data security, and continue to provide secure and convenient services to its users”.
The group added it “expects that the app takedown may have an adverse impact on its revenue in China”.
The CAC had recommended in the weeks before the US listing that the company delay its IPO until it had conducted a review of its data security, said a person close to Didi. Didi said on Monday that it had “no knowledge” of the decision by regulators to intervene until after its IPO.
Additional reporting by Sun Yu and Christian Shepherd in Beijing.