What Happens When a Stock Delists? 10 Things to Know About the Didi Delisting.
Didi Global (NYSE:DIDI) stock is down more than 10% this morning on news that the Chinese ride-hailing company is prepping to delist from the New York Stock Exchange.
Although not entirely surprising, the news has still thrown investors off course this morning. After months of regulatory roadblocks, Didi is filing to delist its American depositary shares from the NYSE. After that, it will file for a listing on the Hong Kong Stock Exchange.
Most importantly, Didi appears to be providing a stark example to investors today of what happens when a stock delists. So what will the Didi delisting mean for shareholders?
What Happens When a Stock Delists
Delistings are common and can be voluntary (as is the case with Didi) or involuntary. Most often, a stock delists from an exchange when it ceases operations due to a bankruptcy filing or takeover. Often times, stocks are delisted from an exchange when they no longer meet the listing requirements.
Stocks are also delisted when a company decides to return to being a private rather than publicly held company. What is unusual is for a company, such as Didi, to delist from one exchange (NYSE) and relist on another (Hong Kong). It is more common for a company to list its shares on multiple stock exchanges around the world, making its stock available for trading in both New York and Hong Kong, for example.
When a delisting occurs, it typically results in shareholders losing all of their investment in a particular stock unless they sell their shares before the delisting occurs. However, if a company is delisted and investors do not tender their shares, some stocks can be traded on the over-the-counter (OTC) market. Buying and selling stocks on the OTC is typically more difficult.
10 Things to Know About the Didi Delisting
Here are 10 things investors should know about the Didi delisting.
- This is not the first time a Didi delisting has been in the news. In fact, Chinese regulators had already asked the company to come up with a plan to delist.
- Investors likely remember that its U.S. IPO angered Chinese regulators earlier in the summer.
- These regulators placed Didi under cybersecurity review just days after its U.S. market debut. They also removed its ride-hailing and delivery app from domestic app stores.
- Companies listed on the Hong Kong Stock Exchange typically have to prove that they are profitable before holding an IPO. As Didi remains unprofitable, its listing in Hong Kong is not guaranteed.
- Didi stock debuted at $14 on the New York Stock Exchange. Since then, it has been on a bumpy ride. Shares are down 56% since that debut.
- The Didi delisting comes as U.S. regulators move to tighten the rules around foreign companies planning to list stocks on American exchanges.
- Although Didi is still unprofitable, it experienced significant revenue growth before coming public. Its Q1 revenue was up 106% year over year amid reopening.
- Investors should note that the vast majority (94%) of its revenue comes from its ride-hailing service.
- Despite this growth, Didi has run into issues with regulators. The Chinese government has required it to lower commissions, provide better wages and refrain from sharing personal data of users.
- At last count, Didi had 377 million active users and 13 million drivers in China.
On the date of publication, Joel Baglole 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.
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