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Didi Plunge Pulls Down US-listed China Shares, Lawsuits Could Mount

A specialist trader at the post where the IPO of Chinese ride hailing company Didi Global was traded on the New York Stock Exchange floor last week. Photo: Reuters.

Didi’s US-listed shares close down by 20% as debate over its IPO disclosure intensifies


(AF) Didi’s recently-listed US shares closed down by 20% on Tuesday July 6 in the first day of trading since China’s cyberspace administration banned new downloads of its app on July 4.

Heavy trading of over 225 million of Didi’s shares was seen on the New York Stock Exchange (NYSE) and the closing price of $12.40 was well below the listing level of $14 seen for its $4.4- billion IPO last week.

The regulatory crackdown by China affected the price of other Chinese firms that have recently listed in the US. Full Truck Alliance, the so-called ‘Uber for trucks’, saw its Nasdaq-listed shares fall by 7%, while online recruitment firm Kanzhun was down by 16%.

China also warned on Tuesday that it will impose further restrictions on companies listing abroad, which affected US prices for some of its biggest firms. 

Alibaba fell by 3% on Nasdaq and Baidu was down by almost 5%.

Social media firm Weibo was an exception to the slump for US-listed shares of Chinese companies after talk of a bid to take the firm private pushed its stock up by over 6%, despite a denial of the rumour by its chairman.

The rapid erosion of market value in Didi’s shares so soon after its IPO is likely to fuel legal action in the US claiming that the firm should have warned investors about pending regulatory action.

‘Strong case’, Rosen tells AF

New York law firm Rosen announced that it is considering a class action suit against Didi, and its founder and managing partner Laurence Rosen told AF on Tuesday July 6 that there is a strong case against the Chinese ride-hailing giant.

“It’s impossible to estimate a settlement amount right now. However, the recent announcement from the Chinese government that they had suggested Didi postpone their IPO strengthens the case substantially,” Rosen said.

China hasn’t formally confirmed a report in the Wall Street Journal on Monday July 5 that its regulators warned Didi executives to delay their US listing, but legal cases are likely to argue that Didi ignored signals of approaching tighter regulation in its haste to list.

Didi, for its part, said it did not have any warning ahead of the July 4 suspension of downloads of its app in China.

And Didi’s IPO prospectus included 40 pages of warnings to potential investors about risk factors, including a section cautioning that it is exposed to risks related to its use of data – the reason for the clampdown in China.

“Even if our practices are not subject to legal challenge, the perception of privacy concerns, whether or not valid, may harm our reputation and brand and adversely affect our business, financial condition and results of operations,” the prospectus said, in a line that may be used in defending future cases by its own lawyers.

Earlier, Rosen’s firm said that Didi “may have issued materially misleading business information to the investing public” ahead of its IPO, and invited investors to join a class action suit.

Rosen was among US law firms to reach a $250-million class action settlement with Alibaba over similar claims linked to disclosure ahead of its $25 billion IPO in 2014, the biggest ever listing of a Chinese firm in the US.

A settlement for a comparable percentage of the deal size relating to Didi’s $4.4 billion IPO would cost around $40 million. This would not be a material amount for the firm dubbed the “Uber of China”, which has around 88% of its domestic market for ride-hailing.

But the speed with which the Chinese regulatory crackdown followed Didi’s IPO – and the subsequent losses for US shareholders – could lead legal firms to push for a much higher proportion of the deal size in this case. 

This report was updated on July 7 for style purposes.



Didi Shares Plunge 25% Amid Threat of US Lawsuits Over IPO Debacle   

Jon Macaskill

Jon Macaskill has over 25 years experience covering financial markets from New York and London. He won the State Street press award for 'Best Editorial Comment' in 2016


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