Didi Global may have guaranteed its continuity after gaining shareholders’ approval for a U.S. stock delisting. But, an instant return to growth will not be easy for the Chinese ride-hailer as it still encounters regulatory scrutiny and COVID-19 has weakened the business.
Didi’s U.S. exit less than a year after its launch there is seen as an attempt to pacify regulators angered by its move to proceed with a $4.4 billion IPO despite being requested to suspend it while Chinese officials analyzed its data practices.
As part of the investigation, Didi’s mobile apps have been withdrawn from app stores in China and new user registrations continue to be rejected. In April, the company posted a 13% fall in its fourth-quarter revenue, compared to a doubling in last year’s first quarter before the probe.
Didi is not expected to see an upturn in fortunes any time soon as the cybersecurity review, carried out by internet watchdog Cyberspace Administration of China (CAC), is still not complete and any penalty to be enforced is yet to be agreed upon, said sources familiar with the matter.
The last penalty on Didi would have to be approved by the central leadership, which is currently busy struggling with more urgent issues such as coronavirus outbreaks across the country and sharp economic slowdown, they added.
One of the people familiar with the matter said:
“Didi’s cybersecurity probe is simply not high on the agenda of the central leaders.”
Setbacks in charting Didi’s future could leave some investors without an exit alternative, whose value has already shrunk. The ride-hailer is now valued at close to $7.2 billion compared to $80 billion around the time of its listing.
Didi failed to immediately respond to a call for comment. Neither did the CAC nor the State Council Information Office.
Backed by Uber Technologies (UBER.N) and SoftBank (9984.T), Didi said in early May that if it does not delist from the U.S. bourse, it would not have the ability to finish Beijing’s cybersecurity review, which has greatly affected its business.
On May 23, some 96% of Didi’s shareholders signed off on delisting its American Depositary Shares from the New York Stock Exchange (NYSE). It intends to submit paperwork with the U.S. Securities and Exchange Commission on or after June 2 to delist.
Didi, which also provides financial and delivery services, previously purposed to list in Hong Kong by June. It has suspended such plans indefinitely after failing to gain approval from Chinese regulators, Reuters has reported.
The regulatory action on Didi in 2021 was part of a greater and unprecedented crackdown by authorities for breaching of antitrust and data security rules, among other issues, aiming at some of China’s well-known corporate names.
In an outstanding reversal just five months after its launch, Didi said in December that it would delist from NYSE and seek a Hong Kong listing.
“The delisting marks an essential but still small step for Didi to survive,” said a person familiar with the company’s thinking. “It must cut off its presence in the U.S. capital market as soon as possible to win the chance.”
Another obstacle facing Didi’s revival of ride-hailing business is China’s strict zero-COVID rules, which have put various cities including financial hub Shanghai under lockdown for months and pushed many others to request mobility controls.
China’s ride-hailing market has been on a downhill trend since mid-2021 because of COVID-19 outbreaks and tougher control on license compliance, with such orders dropping 30% and 37% year-on-year in March and April, respectively, according to Bernstein analysts.
They wrote in a note last week:
“Didi will need to spend more on marketing to boost demand when life is back to normal.”