Didi’s New York woes mask deeper problems

HONG KONG: Didi Global’s problems are accelerating. The Chinese ride-hailing group is now facing a US investigation into last June’s initial public offering. Rising regulatory pressure at home, though, is a bigger blow to aggrieved shareholders including SoftBank’s Vision Fund and Uber.

The US$9 billion (RM39 billion) company laid out both issues in this week’s annual report. It reveals that the US Securities and Exchange Commission “made inquiries in relation to the offering” without elaborating. Didi, which is holding a vote next month on ditching its New York Stock Exchange listing, was forced to shelve plans to list in Hong Kong amid dissatisfaction from Chinese regulators, sources told financial publication IFR. This probe may further delay a return to the public markets.

New details on China’s latest efforts to rein in technology companies look a bigger concern. Previous actions have already taken a toll: Just days after its public debut, the powerful Cyberspace Administration of China announced a review of its data security practices, indefinitely banned the group from registering new users and had local app stores remove more than two dozen Didi services. Didi’s shares are 85% below the IPO price.

A raft of new policies covering information security, user privacy, cross-border data transmission and more have come into effect since. That has prompted Didi to warn that its business could be further restricted, incur significant compliance expenses and be exposed to new legal risks. The word “cybersecurity” appears over 100 times in its annual report, compared to just three times in its IPO prospectus.

Officials are also stepping up scrutiny of ride-hailing apps. In February, the transport department and other agencies issued updated violations including lacking proper permits and licenses as well as infringing on drivers’ labour rights and interests. Watchdogs have tightened regulations on monopolies, unfair competition and on how algorithms can be used too.

All this raises fresh doubts about Didi’s ride-hailing business. Though its core China unit eked out adjusted earnings before interest, taxes and amortisation of US$134 million in the final three months of 2021, revenue slumped 15% year-on-year. The company has warned that it may have to write down part or all of the US$7.3 billion in goodwill, some 30% of its assets, from buying Kuaidi and Uber China. Shareholders may be in for a long and painful Didi repair job. – Reuters