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Didi’s regulatory problems may just begin


In paperwork Didi filed ahead of its initial public offering, Chinese ride-hailing platform did not miss Warning investors that regulators were hovering in Beijing.

After China’s internet regulator, antitrust watchdog and tax authority called it And for a meeting in April of more than 30 other Internet companies, Didi said, the company examined its operations and “disclosed several areas that could be deemed problematic from a compliance perspective.” Although government officials conducted on-site inspections, Didi said she could not guarantee investors that she would avoid penalties.

those warnings barely indicated abruptly stop Which has shortened Didi’s upcoming party.

Didi shares lost a fifth of their value on Tuesday and fell again in early trading in New York on Wednesday. The company was trading 16 percent below itself IPO price from a week ago.

The plunge was born in a rapid-fire series of actions by government agencies in Beijing, where top policymakers announced this week that they would aim to strengthen surveillance of Chinese companies, such as Didi, on exchanges abroad. List your shares.

Just days after Didi’s IPO, China’s internet regulator asked the company to stop signing up new users so it could conduct a cybersecurity review. The agency then ordered the removal of Didi’s app from mobile stores due to concerns about data collection.

Then, on Wednesday, China’s antitrust authority slapped other tech companies, including Didi and Alibaba. minor fine For failing to report merger deals to the agency in advance. (Didi mentioned the possibility of such fines in her IPO disclosure.)

A representative for Didi declined to comment. The company said it was not aware of regulators’ plans for a cybersecurity review or a ban on new downloads before they went public.

But Jason Hsu, chief investment officer at Reliant, an asset manager that invests in Chinese securities, said Chinese regulators usually discuss the regulatory actions they are about to take with companies.

“So one would assume that prior to its IPO, Didi was aware of a possible formal investigation,” Mr. Sue said.

The listing of the company was completed at an alarming pace. It filed preliminary paperwork on June 10. Two weeks later, it revealed an estimated price range for its stock. Its shares were trading less than a week after that.

By failing to disclose prior awareness of market-driven regulatory decisions, Didi and the banks that arranged the initial public offering — Goldman Sachs, Morgan Stanley and JPMorgan Chase — were vulnerable to investor lawsuits and regulatory problems in the United States. are sensitive.

Representatives for banks and the US Securities and Exchange Commission declined to comment. In the United States, Didi is represented by Schaden, Arps, Slate, Meagher and Flom, which did not immediately comment.

But data security and network security are hardly the only fronts on which Chinese officials are rounding Didi. That means the company, its investors, and its underwriters could be in for even more unpleasant surprises.

China’s antitrust authority has been investigating the country’s internet industry in a never-before-seen manner in recent months, accusing corporate giants of abusing their size and market power. In April, I.T. Alibaba fined $2.8 billion, whose shares are also listed in the United States, to prevent traders from selling on its markets to other online platforms.

On a more local level, Didi has fought for years with city officials in China over operating permits and licenses. The company acknowledged in its IPO filing that many of its drivers in China did not obtain the necessary licenses to provide ride-hailing services. Beijing and ShanghaiFor example, it requires that ride-hailing drivers be local residents, but both cities make it very difficult for people to register as local residents in order to control population growth.

Didi said in its IPO documents, and the “big” cars on its platform may not have the required vehicle permits. Cars used for online ride-hailing services in China must meet certain safety criteria to obtain such permits.

The announcement of top Chinese policymakers this week that they will seek to tighten regulation of foreign-listed Chinese companies makes it a very real possibility that still other Chinese regulators may decide to act against Didi. of government policy document Published on Tuesday, it said stronger capital-market regulation should be combined with broader efforts to uphold national security and social stability, a sign of how seriously Beijing now takes such issues.

Wendy Ng, who studies Chinese competition law at the University of Melbourne, said different Chinese government agencies are generally required to consult with each other, even if they don’t outright coordinate investigations into major companies like Didi. Sometimes, other agencies may back down if they feel that the case is weak or their regulatory domain is being encroached upon.

“But in this environment, where it seems that the floodgates have opened, at least for the time being, to give regulators the green light to rein in digital platforms, there seems to be a need to oppose other regulators. The chances are very slim,” said Professor Ng.

For example, if China’s internet regulator determines that Didi failed to protect users’ data, it could feed into an investigation by antitrust watchdogs into whether the company did so to squeeze its rivals. , Professor Ng said.

“This is what antitrust regulators around the world are talking about: a breach of privacy may or may not even be evidence of an abuse of dominance,” she said.

The United States is trying to tighten its rules for foreign companies that are listed on American exchanges. Washington lawmakers who have called on US regulators to have more authority over Chinese companies are pointing to the mess in Didi to support their cause.

Republican Senator Marco Rubio of Florida said in a statement to The New York Times, “Even if the stock rebounds, American investors still have no idea about the financial strength of the company as the Communist Party of China is reviewing the books to US regulators.” prevents it from doing.” “It puts American retirees’ investments at risk and funnels desperately needed US dollars into Beijing.”

Mr. Rubio and Senator Bob Casey, Democrat of Pennsylvania, introduced a bill In May it would prevent Chinese companies from going public in the United States if they do not subject themselves to the full authority of the US entity that oversees auditors.

Matthew Goldstein contribution reporting, and albie zhang Contributed to research.



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