On Dec. 2, Didi Global (NYSE:DIDI) said it would delist from the New York Stock Exchange, opting instead to list DIDI stock on the Hong Kong Stock Exchange.
Didi went public in July at $14 a share. Except for a brief jump after its IPO, its share price has gone steadily downhill. The company’s delisting announcement appears to be the final nail in its North American coffin.
If you own DIDI, what should you do with this news? If you don’t own DIDI stock but were thinking about buying it, you could ask yourself the same question. I’ll look at both situations.
Owners of DIDI Stock Should Hang Tight
The Dec. 2 press release makes it clear that owners of the company’s American depositary shares will be able to trade them after delisting from the NYSE.
“…ADSs will be convertible into freely tradable shares of the Company on another internationally recognized stock exchange at the election of ADS holders,” Didi says in the statement. “The Company will organize a shareholders meeting to vote on the above matter at an appropriate time in the future, following necessary procedures. The Board has also authorized the Company to pursue a listing of its class A ordinary shares on the Main Board of the Hong Kong Stock Exchange.”
The most straightforward move by the company would be to delist once it’s gotten the green light to list in Hong Kong. You could continue to hold your shares if your broker accommodates Hong Kong stocks. Unfortunately, many didn’t wait to see if that was possible. As a result, DIDI stock lost 22% in a single day on the news.
Now, should it delist before it gets approval from Hong Kong, owners of ADSs would get one Class A ordinary share for every four ADSs. So you could hold on to them or sell them over the counter. It’s also possible that Didi Global could buy back the ADSs at a premium to their current price.
While the company will hold a vote on the matter, the ADSs account for 8% of the outstanding shares [364.3 million ADSs / 4 / 1.21 billion Class A ordinary shares].
So, it seems unlikely that the 92% of shareholders who own Class A ordinary shares would vote against the plan.
If you bought the IPO, you’re down about 58%, so it might make sense to sell if you’re looking to harvest some tax losses to balance out against some of your gains. Just remember that the trades must settle in December to qualify for your 2021 taxes.
If you don’t have capital gains to offset your DIDI losses, I might be inclined to hang in there and see how this plays out. However, you might find out that patience is a virtue.
If You’re Thinking of Buying
One of the best companies I know trades over the counter. I’m speaking about LVMH (OTCMKTS:LVMUY), the French luxury goods conglomerate. Its common shares trade on the Euronext Paris. Five ADS equals one common share. LVMUY averages 127,400 shares traded per day. Its ADSs have a five-year annualized total return of 34.9%.
Now, I’ll admit that LVMH isn’t the typical stock traded on the OTC market, but it’s a reminder that stocks moving off a major North American stock exchange isn’t a death sentence.
One comment from Shanghai Jiaotong university finance professor Nan Li about the delisting caught my attention:
“Well, again no surprise to me. This is the only way that Didi can survive, and this is maybe a good thing for the investors in the U.S. market,” Reuters reported Li saying. “There are other issues related to Didi in addition to the data security. Didi also embedded financial services on their platform, they withheld the payment to the drivers, charge high fees for drivers, make loans with high interest rates etc. And the inherent problems of the share-riding due to the fact there is no appropriate regulation of the bad behavior of the drivers.”
The professor effectively says that Didi Global needs to get its house in order. By backing away from the U.S. market and listing closer to home, it could be playing nice with the Chinese government to achieve a better outcome from the Cyberspace Administration of China’s (CAC) cybersecurity investigation of the company.
U.S. listing or not, a relatively small fine combined with a green light to relaunch its apps in China would be excellent news for the company and its investors. Down significantly from its IPO, now might be ideal for placing a speculative bet on DIDI stock.
Leaving the NYSE isn’t a death sentence.
On the date of publication, Will Ashworth 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.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.
