HONG KONG — Shares of Didi Global are set to plunge as U.S. markets reopen for the first time since regulators ordered a halt to downloads of China’s top ride-hailing app over poor data practices, likely wiping billions of dollars from its market value just days after its $4.4 billion initial public offering.
Didi stock traded hands as much as 28% below Friday’s closing price in premarket trading ahead of Tuesday’s reopening of the New York Stock Exchange after the July 4 holiday weekend while two other recently listed Chinese companies singled out by the regulator also tumbled. The drop in Didi’s shares would imply a loss of some $20 billion in market capitalization.
Didi was 19.4% lower at $12.52 at 6:57 a.m. in New York, well below last week’s IPO price of $14.
On Sunday, the Cyberspace Administration of China (CAC) said it had ordered smartphone app stores to stop offering Didi’s program after concluding the company had illegally handled users’ personal data.
Didi’s shares fell 5% to $15.53 in New York on Friday after the CAC first announced its review, giving the company a market capitalization of more than $74 billion.
Kanzhun, operator of online recruitment app Boss Zhipin, and logistics company Full Truck Alliance, which both listed last month in the U.S., were 9.7% and 15.9% lower, respectively in premarket trading after the CAC cited both companies on Monday, ordering them too to halt new user registrations.
The crackdown on companies that recently listed in the U.S. comes amid a geopolitical struggle between Beijing and Washington centered in part on technology. The investigation by the CAC will hurt the revenues and profits of the three companies, which are highly dependent on the Chinese market.
“For investors, it is clearly a warning sign as no Chinese company seems to be safe from China’s regulatory scrutiny,” said Zennon Kapron, managing director of consultancy Kapronasia in Singapore. “This was a risk that may have been easily discounted in the past, but no more today.”
It is also could derail the rush by Chinese companies to list in the U.S. although LinkDoc Technology, a medical data company backed by Alibaba Health Information Technology, appears on track to raise up to $210 million in an IPO set to price on Thursday. The offering has generated “investor interest,” said a person involved with the transaction.
Thirty-four Chinese companies raised $12.4 billion in New York floats in the first half of 2021, data from research provider Dealogic shows, compared with 18 listings that raised $2.8bn in the same period last year.
Share price “performance does matter,” said a Hong Kong-based banker who works on IPOs. “How the shares open will have a bearing on the foreseeable pipeline. Common sense will probably dictate that in an environment where U.S.-listed Chinese companies are being targeted, you will start to see the IPO flow switch to Hong Kong.”
The CAC’s investigations continue a monthslong Chinese regulatory crackdown on technology companies. Authorities have probed antitrust breaches, data security and privacy issues in seeking to limit the growing clout of technology companies and their billionaire founders.
Prominent in the crackdown has been Alibaba Group Holding and its financial affiliate Ant Group. Ant was prevented from carrying out what was expected to be the world’s largest IPO last November when regulators tightened controls over its lending business. Meanwhile, Alibaba was hit with a record fine of 18.2 billion yuan ($2.75 billion) in April for anti-competitive practices.
More than 30 other Chinese companies have faced tighter regulator scrutiny, including food delivery company Meituan, Tencent and online retailer JD.com.