Didi, according to two people familiar with the situation, began informal talks with the Hong Kong Stock Exchange on a public listing while the Chinese leader tried to return home after his disastrous IPO in New York.
Chinese regulators, in fact, jeopardized Didi’s business in the days following its US debut last June, by ordering that its applications be deleted from mobile application stores and launching investigations into how it handles data. Didi’s shares, which started trading at $ 14, is now worth $ 4.50, after losing more than $ 40 billion in market value.
A listing in Hong Kong is now critical for the group, after which it will begin the delisting process in the US and offer holders of its US shares a one-on-one exchange with its HK shares, according to one major Didi investor .
“This is the proposal of the Chinese [government], so if they can not do it, they are in the penalty box forever, ”said the investor.
But a Hong Kong listing will not be easy and may still take a long time to arrange, company insiders and analysts said.
Two major challenges are the unresolved government investigation in Didi and its ongoing problems in obtaining the correct permits for its business and managers in various cities across China.
While placed in limbo, Didi seen balloon losses to $ 7.6 billion in the first nine months of last year. It is on track to burn through its cash spending pile and short-term investments by mid-2023 at its current spending rate.
The central government investigation into Didi, which saw seven agencies, including the much-feared Ministry of State Security, send officials to its headquarters, remains unresolved.
In the initial unrest, investigators stopped all of Didi’s marketing campaigns for 45 days and banned the company from making public statements without their signature.
Six months later, investigators left Didi’s offices and submitted their reports, according to two people familiar with the matter, and company insiders are waiting nervously for the verdict.
One person close to Didi’s executive team insisted that the investigation did not reveal any material evidence of the central allegation that Didi was transmitting or exposing his sensitive data, including the ride requests to and from government ministries in Beijing.
But the person predicted that Beijing “will still find something Didi did wrong” to set an example of the company. While Didi has been allowed to announce that he wants to list in Hong Kong and announce his earnings, there is still no sign of when he will be able to offer his applications to the public again.
In an effort to appease the government and improve its political standing, Didi sought to bring in state-sponsored investors as shareholders, according to two people involved in the process.
Founder and President Jean Liu has sued several state-backed groups, including rival group Shouqi and state-run conglomerate CITIC, but the approaches have not yet led to an agreement.
Didi and CITIC Capital declined to comment. Shouqi did not respond to a request for comment.
A formal end to the investigation and the return of its applications to online stores is essential for a listing in Hong Kong, said a former manager at the exchange who was previously involved in the selection of IPO candidates. Otherwise, “the business is not sustainable and does not comply with exchange rules”.
But HKEX’s review process also includes a “suitability” requirement, which determines whether companies comply with regulations. It was the obstacle that persuaded Didi last year to divert his IPO to New York sooner.
Local authorities across China told the Financial Times Didi violated strict rules that required ride-visit apps to obtain three permits from each city in which they operate: a company license and a permit for each driver and each vehicle.
In his large market in Shanghai, an official at the road transport bureau told the FT: “[Didi] do not have the right permits, they are definitely working illegally here. ”
“We have been fined [Didi] more than Rmb100m, but they are an internet company, so the power of the fines we can levy did not have much impact, ”the official added.
She said her department tried to get the city’s internet regulators to block Didi’s website and app, but was stopped by jurisdiction issues as Didi’s website was not registered in Shanghai.
“We are still collecting clues, materials and evidence to pass on to the central transport department. . . perhaps they can impose restrictions to have a greater impact, ”she added. Didi was one of a group of poorly-visited travel companies summoned to meetings in Shanghai in October, November and December, she said.
Government data shows that Didi was hit with hundreds of small fines in December over his compliance issues, of about Rmb10 000 ($ 1,570) in a number of cities across the country. In November, only 44 percent of Didi’s rides were fully compliant, although the company made a steady improvement from the beginning of 2021.
Even in places where Didi has made progress, such as the southern city of Jieyang, where it has obtained an operating license, challenges remain.
“Didi had major problems operating safely and in compliance,” the city’s transportation agency said last month. “They have seriously lost our trust.”
A Jieyang official told the FT: “Didi is working with us on the correction, but tangible results are still on the way… progress is a bit slow.”
Didi declined to comment on the fines and compliance issues. The person close to Didi’s executive team said the Hong Kong Stock Exchange wanted Didi to fully comply with 70 to 80 percent of the company’s 100 largest Chinese cities, but that it was impossible for Didi to do so quickly.
“HKEX lowering of compliance requirements is the key to [Didi] to be able to list there. . . there is currently no way that any rowing company can be listed there, ”the person said.
The person added that it is so far unclear whether the exchange will lower its standards to accommodate the company. Didi’s rival Dida started the process for a Hong Kong IPO in the autumn of 2020, but has so far been unlisted.
Additional post by Maiqi Ding in Beijing