To say DiDi Global (NYSE:DIDI) stock’s investors are in a spot of bother is probably a major understatement. The Chinese ride-hailing giant had just been listed on the NYSE a few months ago at $14 per share. However, DIDI stock is now trading in the penny stock territory at $4.34 and is likely to delist from the American stock exchanges amidst regulatory pressures from home. Though some investors may see the silver lining in this development, the company has plenty to figure out before serious investors can consider it.
DIDI stock has been hammered at the stock market since its listing. Due to its tussle with the Chinese government, the stock has shed an incredible amount of value of late, currently trading more than 75% lower than its 52-week high price of $18.01.
Investors could feel reluctant at this point to sell their shares at the current repressed prices. However, it appears that the stock is likely to remain under a lot of duress for the foreseeable future.
Possible Delisting Scenarios for DIDI Stock
As I mentioned earlier, DiDi has succumbed to the pressures exerted by the Chinese Communist Party (CCP) government and plans to delist from U.S. stock exchanges. DiDi would believe that delisting from the U.S. markets and starting afresh in Hong Kong will help mend relations with the CCP. However, how does this move affect U.S. investors?
An obvious move for the company could be to take themselves private with the government’s help. DiDi’s top-level management has a combined voting stake of over 50%, which means they could execute the privatization plan and cut out U.S. investors. In doing so, they are likely to offer U.S. investors the option to redeem shares at slightly lower than its initial public offering (IPO) price.
On the flipside, DiDi may opt for an IPO in Hong Kong. Consequently, it would offer its U.S. shareholders to convert American depositary shares into common shares. This will also allow U.S. investors to retain the Hong Kong stock exchange ownership. It will be interesting to see what the management ends up deciding, but we’ll have to wait for another update.
Will the Regulatory Woes End?
The regulatory scrutiny for DiDi is unlikely to end anytime soon. Perhaps the best course of action for the company would be to sell a major stake to a state investor. Moreover, it will also have to segregate its financial segment from its ride-hailing segment. We have seen in the recent past how Chinese regulators have singled out tech companies with a financial services wing.
Therefore, DiDi will have to address these issues to move forward. Moreover, it needs to relaunch its apps, fend off its competition, and potentially brace for antitrust fines. If it is able to weather the storm and emerge from these challenges unscathed, then its stock may reverse course.
The crackdown has already had a troubling impact on the company’s financials. Its quarterly loss of $4.7 billion in its third quarter is a testament to how tough it is to conduct business in China. Last year, the company generated $103 million in net profits in the same period.
Bottom Line on DIDI Stock
Dark clouds are looming over DIDI stockholders at this time. Its delisting from the U.S. stock exchange is likely to open Pandora’s box, which doesn’t bode well for its existing shareholders.
Even if it lists on the Hong Kong market, things will not be hunky-dory for DiDi as it will have to prove its mettle from an operational standpoint. Hence, it is in a rough spot at this time and is unlikely to rebound anytime soon.
On the date of publication, Muslim Farooque 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
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.