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On, off, on ramp

29 July 2021 By Robyn Mak, Liam Proud

A quick turn of the steering wheel might benefit Didi Global. The regulatorily beleaguered Chinese ride-hailing group denied a report that it’s considering going private just a month after an initial public offering in America. Changing course would be uber-embarrassing, nearly unheard of and quite costly. But it may be the only way to get back in Beijing’s good graces amid a continuing crackdown.

Didi’s run in New York has been disastrous from the get-go. Just days after its public debut, the Cyberspace Administration of China said it was investigating the company and ordered app stores in its home market to remove its services. Didi’s huge trove of potentially sensitive data, including real-time whereabouts of Chinese citizens, likely set off alarm bells in Beijing.

A Washington campaign to force Chinese businesses to grant American regulators access to audited accounts have further added to data-security concerns. Beijing’s relentless crackdown on everything from education companies to gig-economy drivers hasn’t helped either. As of Wednesday’s close, Didi shares had plunged by more than a third from the IPO offer price.

Reversing course now would be deeply shameful for boss Will Wei Cheng. He’d have wasted all the time and resources associated with the listing, including up to $100 million in fees shared by Goldman Sachs, Morgan Stanley, JPMorgan and others. The Wall Street presence was also meant to signal Cheng’s ambitious global expansion plans.

A buyout at the IPO price of $14 per share would be expensive. Assume Didi’s strategic backers including SoftBank Group’s Vision Fund, Uber Technologies and Tencent join a consortium led by Cheng and senior management. Together, the group own about half the equity. That would still imply a total outlay of $35 billion, according to Breakingviews calculations. Didi is mulling bringing in state-backed investors to help finance a deal, according to the Wall Street Journal, which first reported the take-private discussions.

Didi surged as much as 9%, suggesting shareholders might play ball. No wonder: as part of the cybersecurity probe, at least five different regulatory agencies have been crawling inside the company. A U-turn from New York, and perhaps an eventual relisting in Hong Kong or Shanghai, may be the most straightforward path to please both investors and Beijing. Maybe Cheng can even get the IPO’s underwriters to waive their advisory fees on the LBO.


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