Didi's Fate In Limbo As CCP Rejects Proposed Penalties

Tyler Durden's Photo
by Tyler Durden
Thursday, Apr 21, 2022 - 05:42 PM

The last thing Didi investors wanted was more uncertainty, and yet, here we are.

Bloomberg reported on Thursday that the perennially troubled Chinese ride-hailing giant has entered a new era of uncertainty due to the fact that Chinese authorities haven't been able to decide on a suitable punishment for the company, which provoked the CCP's wrath by moving ahead with its US public offering last summer despite regulators' misgivings. 

China's Cyberspace Administration of China, tasked with investigating the firm, has been told by the central government that China's leadership isn't satisfied with any of the proposals from the regulator, specifically because they feel they don't go far enough.

Didi has suspended its plans for a Hong Kong listing as a result, increasing the likelihood that it will end up trading as a "pink sheet" penny stock in the US after it de-lists from the NYSE next month. 

As a result, Didi's biggest shareholders, including Fidelity and BlackRock, could be forced to dump whatever is left of their holdings after the company de-lists from the NYSE - an eventuality that's seen as a virtual certainty - since their investing mandates proscribe holding penny stocks. 

And although SoftBank, one of Didi's biggest backers, has no restrictions on what and how it can invest, the firm has already seen its $12 billion investment shrink to less than $2 billion. 

Here's more from Bloomberg: 

Didi’s shareholders - which include marquee names from Fidelity Investments to Blackrock - have so far refrained from public comment on the delisting. The Chinese company briefed several investors on the potential relegation of its stock and at least one of them was unhappy with the latest development, one of the people said. Some investors could be forced to sell because their mandates don’t allow them to hold unlisted shares. Japan’s SoftBank Group Corp., which can hold unlisted stock and plowed more than $12 billion into the company, has seen its 20% stake fall from a peak of about $16 billion to less than $2 billion.

Didi shareholders are expected to vote on the delisting plan on May 23. Since co-founders Cheng Wei and Jean Liu retain majority control, the proposal is expected to pass. 

In further bad news, Nikkei reported Thursday that Didi is planning to shutter its food-delivery business in Japan. Most of Didi Food's 200 employees will be laid off at the end of next month.

Didi Food Japan, the subsidiary running the food delivery service, on Wednesday said it will shut down the business on May 25. It launched the business in April 2020 in Osaka and has since expanded to nine prefectures, according to its website.

"Unfortunately, due to local market conditions, we have made the difficult decision to discontinue Didi Food in Japan from 25 May 2022 and will focus on our taxi-hailing services in the country," the company said.

Didi shares tumbled in premarket trading, in line with a broader decline in US-listed Chinese tech stocks, which tumbled for a third consecutive day as production disruptions on the mainland continued to weigh on shareholder sentiment. Chinese stocks have had a particularly brutal year so far, on track for a third consecutive monthly decline in April.