Alibaba and Didi in Spotlight Amid China Crackdown; Cramer Notes Didi 'Chicanery'

Alibaba  (BABA) - Get Report, Didi Global  (DIDI) - Get Report and Tencent  (TME) - Get Report were all in the spotlight on Wednesday as details of Chinese regulators cracking down on overseas-listed companies weighed on some of the country’s biggest publicly traded entities.

Specifically, the China Securities Regulatory Commission said Wednesday that it was planning rule changes that would allow them to block a Chinese company from listing on U.S. and other overseas exchanges, even if the unit selling shares is incorporated outside China.

Once amended, the rules would require firms structured using the so-called
Variable Interest Entity model to seek approval before going public in Hong Kong or the U.S., Bloomberg reported, citing individuals familiar with the matter.

The proposed change is the first indication of how Beijing plans to implement a crackdown on overseas listings flagged by the country’s State Council on Tuesday. Closer oversight would plug a gap that’s been used for two decades by technology giants to attract foreign capital and list offshore.

It potentially also would thwart future plans of companies like ByteDance, which have contemplated raising capital in public markets outside mainland China.

The changes are subject to approval by the State Council. The securities regulator plans to discuss potential revisions with firms that underwrite share sales, one
of the people told Bloomberg.

While virtually every major Chinese internet company has used the structure, it’s become increasingly worrisome for Beijing as it tightens its grip on technology firms that have infiltrated every corner of Chinese life and control reams of consumer data.

Authorities so far have little legal recourse to prevent sensitive overseas listings, as with the recent Didi IPO, which went ahead despite requests for a delay from regulators, which in turn has raised questions about the speed and timing of the offering.

"Didi thought it was bigger than the government, It was a rushed deal which people --including me -- read as a sign of giant demand," TheStreet's Jim Cramer said in a tweet on Wednesday. "Now we wonder if they jammed it because they didn't care about screwing us."

Didi Global shares plunged on Tuesday as investors reacted to a weekend move by authorities in China to remove the ride-sharing group from mobile app stores as part of a heightened regulatory focus on cybersecurity.

U.S.-listed shares of Didi Global were down 4.4% at $11.94 in premarket trading. Alibaba's American depositary receipts were up 0.43% at $212.50 in premarket trading, while Tencent ADRs trading in New York were up 1.49% at $14.31.