Didi Shares Pump And Dump On Proposed NYSE Delist; Here's What Wall Street Thinks

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by Tyler Durden
Friday, Dec 03, 2021 - 01:28 PM

Update (0828ET): Didi Global Inc. pumped then dumped in premarket as the company's board of directors decided to delist from U.S. exchanges and list on Hong Kong.

Didi's shares initially jumped more than 14% and have since erased all gains, plunging 23% from the high of around the $9 handle to the $7 handle. 

Here are the top headlines (via Bloomberg) surrounding China stocks: 

  • Didi Prepares U.S. Delisting, Hong Kong Share Debut 
  • U.S. Regulators Move Step Closer to Delisting Chinese Firms 
  • China Tech Rout Deepens to $1.5 Trillion as Didi Emboldens Bears 
  • Didi, Others Could Seek Homecoming on U.S. Delisting Threat

Bloomberg has compiled a list of analysts responding to the Didi situation:

Atlantic Equities (Xiao Ai) 

  • An NYSE delisting is "very disruptive" to near-term liquidity 
  • While the U.S. holders will continue to have access to some liquidity, there will inevitably be disruption and an impact on trading volume 
  • Unclear as to whether Didi is fully in compliance with all the requirements for a Hong Kong listing 
  • Recommends investors hold Hong Kong listed shares of companies with dual listings

Bloomberg Intelligence (Marvin Chen) 

  • Valuations for additional offerings may be impacted, particularly in the current environment, given the heightened uncertainty on regulations and China policy 
  • "Generally H.K. equities trade at lower multiples. And in the current environment, definitely their valuation expectations will be reset." 
  • Hong Kong and mainland exchanges, brokers and other market participants could benefit from increased fund raising activity in the region

Guosen Securities (H.K.) (Gary Ching) 

  • American investors will be keen on selling ADRs if they are forced to delist from the U.S., which will add pressure on their share prices 
  • The SEC news hurt sentiment on H.K. tech stocks, especially for companies listed both in the H.K. and U.S. 
  • The Didi delisting news raises market concerns about pressure on Chinese firms' pressure to delist from the U.S. market, since many technology companies' structures are similar to Didi's In the long run, the returnees will benefit the Hong Kong market

First Shanghai Securities (Linus Yip) 

  • It might take at least 3-6 months for Chinese firms to delist from the U.S. and then relist in Hong Kong 
  • The process may affect their financing for a bit, but the impact could be limited

IG Asia (Jun Rong Yeap)

  • "While the risks of delisting have already been brought up previously, a step closer toward a final mandate seems to serve as a reminder for the regulatory risks in Chinese stocks"

UOB Kay Hian (Hong Kong) (Steven Leung) 

  • The negative impact will likely be short-term, as this is not the first time and there have been U.S.-listed Chinese companies moving to the H.K. already 
  • "I would expect more delisting from the U.S. to come, but they should not be in a rush," as the year-end slow season approaches

United First Partners (Justin Tang) 

  • Didi will be the template for other Chinese companies following that same path 
  • A U.S. delisting would see a company lose exposure to investors who can only trade on American exchanges 
  • "This will see the so-called 'cross-listing premium' erode compared to companies not listed in U.S. markets"
  • Chinese stocks that have been delisted can still trade OTC in the U.S., but with "significantly lowered" liquidity and investor protection 
  • The cost of capital will be higher

* * * 

Didi Global Inc. shares trading in New York jumped as much as 14% premarket after it said it would begin to delist from U.S. stock exchanges and list in Hong Kong. 

According to a company press release, the ride-hailing giant's board of directors "has authorized and supports the Company to undertake the necessary procedures and file the relevant application(s) for the delisting of the Company's ADSs from the New York Stock Exchange, while ensuring that ADSs will be convertible into freely tradable shares of the Company on another internationally recognized stock exchange at the election of ADS holders."

"The Board has also authorized the Company to pursue a listing of its Class A ordinary shares on the Main Board of the Hong Kong Stock Exchange," the press release continued. 

The move comes after the Cyberspace Administration of China requested Didi's top executives to develop a plan to delist from U.S. stock exchanges last week due to concerns about leakage of sensitive information. 

A delisting from the NYSE could spell trouble for U.S.-listed Chinese firms as Sino-U.S. tensions heat up. What may follow could be a series of US-to-China transfers.

Indeed, as noted recently, two decades of Chinese firms listing on U.S. exchanges could be coming to a close, as Beijing seeks to crack down on variable interest entities (VIE), a loophole used by tech companies to raise billions of dollars in capital from overseas investors. 

Chinese companies have used VIE to exploit a loophole and set up a legal business structure in which an investor has a controlling interest despite not having a majority of voting rights. This allowed them to raise money from overseas investors by bypassing Beijing's restrictions on foreign investment. We noted in early September that Beijing would soon close the loophole.  

The prospect of banning VIEs is part of a yearlong campaign to curb the power and address data security concerns of China's internet sector. Beijing has called the rise of big tech a "reckless" expansion of private capital.

And just yesterday, the SEC shared its final plan for forcing Chinese firms to delist from U.S. exchanges should they refuse to open their books and abide by stringent American auditing standards.

In response to the increasing rift in financial markets between the two largest superpowers, the Hang Seng Tech Index, which tracks Chinese tech stocks, plunged 2.7% before closing 1.5% lower

Here's what Bloomberg Intelligence is saying about the Didi situation:

Didi's plans to sell shares in Hong Kong and delist in the U.S. reduces risk of a messy, forced delisting by regulators in both China and the U.S. and may signal that Chinese authorities' crackdown on it has peaked. The company's statement bolsters our view that a Hong Kong IPO will come before a U.S. delisting, with a seamless conversion of ADSs into Hong Kong-listed shares. -- Matthew Kanterman and Tiffany Tam, analysts

It appears that Didi will now serve as the blueprint for other US-listed Chinese companies to quietly pack their bags and relist in Hong Kong.