Movers and SHAKERS
When Stocks Like DiDi Delist, What Happens to Shareholders?
DiDi Chuxing is a ridesharing giant based in China. It went public through an IPO on June 30th of this year. The offering raised a total of $4.4 billion ($14 per share). On December 2nd, DiDi announced plans to delist its shares from the New York Stock Exchange and prepare for a listing in Hong Kong, this is just five months after the Chinese-based company debuted as a publicly owned corporation. Why might they be suddenly switching gears? How does a company delist? And, what happens to the shareholders of the ADRs?
DiDi’s delisting from the NYSE to catch a new ride on the Hong Kong Exchange may have resulted from intense pressure from China’s cybersecurity “watchdog.” Just days after their IPO, a probe into Didi (DIDI) was launched in China for the purpose of protecting national security and the public interest. The regulator took the costly step (to DiDi) of suspending all new user registrations on the app in China.
Reports quickly emerged in July that DiDi was looking into going private in order to satisfy Chinese authorities. This never unfolded. In a statement yesterday, the company announced, “After careful study, the company will start the work of delisting from NYSE and initiate preparation for listing in Hong Kong with immediate effect.” The company stock opened 9% lower this morning (December 3).
Shareholders of DiDi ADRs will see their shares convertible into “freely tradable shares” on another stock exchange, said the company. Didi said it would organize a shareholders meeting to vote on the issue.
How Delisting Works
Companies can become involuntarily delisted by the exchange if they fail to maintain certain standards. An example could be not maintaining the value of $1 per share or more. They may voluntarily delist if they find there is a cost-benefit analysis of either going private or moving to another exchange that can benefit either because of the company they keep on the exchange (i.e. tech stocks traditionally prefer Nasdaq) or because the listing requirements better suit their current and ongoing situation. In the case of DiDi, this move appears to remove regulatory hurdles.
On Thursday (December 2), the U.S. Securities and Exchange Commission (SEC) finalized rules that would allow it to delist non-US companies that refuse to open their books to the U.S. regulators. China has for years rejected U.S. audits of its firms, citing national security concerns. This adds a new layer of protection for investors in markets overseen by the SEC.
On December 1st, Bloomberg reported that Beijing is set to ban the loophole that allowed companies like Alibaba and Didi to list in New York in the first place. Whether this adds value to those currently listed, reduces the pace of new listings, or has no impact remains to be seen.
There are a number of reasons a company may delist from a U.S. exchange. One of the least common is adherence to pressure from the company’s country of origin. The American Depository Receipts structure has been in existence since 1927, while the SEC and other countries may tighten their oversight, there are no signs that foreign listings will change very much going forward.
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