Shares of DiDi Global (NYSE:DIDI) are climbing on Thursday morning after reports the beleaguered Chinese ride-hailing giant could go private. That talk comes less than a month after DIDI stock began trading in New York.
The Wall Street Journal earlier today reported the firm is considering going private to placate Chinese regulators and compensate investors for losses. Bloomberg News reported last week that Beijing regulators were considering severe penalties for Didi, including forcing it to delist.
DiDi issued a denial of the report. “The Company is fully cooperating with the relevant government authorities in China in the cybersecurity review of the Company,” it said.
DiDi, operator of China’s largest ride-hailing app, earlier this month was accused by regulators of violating laws involving the collection and use of consumers’ data. Regulators had largely supported the idea of last month’s IPO, but they expressed concerns about DiDi’s data security practices since at least April, according to WSJ.
InvestorPlace contributor Larry Ramer earlier this week wrote that as there is “a significant chance that the company’s business will be crippled or even shut down” the company’s growth is “likely to be meaningfully hindered for a very long time.” He strongly urged investors to sell DIDI stock, seeing the name as a good target for short sellers.
DIDI Stock Among Chinese Shares Targeted by Government
Investors last month were quick to spend $4 billion for the offered 288 million American Depository Receipts (ADRs) despite the fact that the ride-hailing company isn’t currently profitable. It already covers 90% of the Chinese ride-hailing market. The company reported a comprehensive loss of $2.54 billion in 2020.
A new “data security” law gives Chinese President Xi Jinping the ability to close companies found to have been inappropriately dealing with “core state data.” So, since DiDi has been charged with improperly handling citizens’ data, it could quickly and easily be shut down.
But DiDi is not alone. China’s most powerful companies, including Alibaba (NYSE:BABA) and Tencent (OTCMKTS:TCEHY), have come under pressure as bureaucrats in Beijing crack down on companies that list on American exchanges. Earlier this month, the powerful State Council said that “the overseas listing system for domestic enterprises” will be revised, promising it will also tighten restrictions on cross-border data flows and security.
There are more than 240 Chinese companies listed on three major U.S. exchanges with a total market capitalization of $2.1 trillion, according to the U.S.-China Economic and Security Review Commission. That include eight national-level Chinese state-owned enterprises.
On the date of publication, Robert Lakin did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
InvestorPlace contributor Robert Lakin is a veteran financial writer and editor, including previous stints with Bloomberg News and as a buyside equity research editor.