Chinese tech firms saw nearly $100 billion of value erased this week after markets were blindsided by a Didi cybersecurity probe and a subsequent crackdown on overseas listings. finews.asia reviews its unraveling and imminent pressures for the financial sector.
$92 billion in market capitalization evaporated from the Hang Seng Tech Index since Sunday when the Cyber Administration of China (CAC) made an unexpected move to boot ride-hailing giant Didi from the country’s app stores.
Market pundits were split between a bearish tone over short-term uncertainty and a still constructive tone with some advocating to view the current downturn as a temporary dip. But the near-consensus view was that more pressure was imminent.
finews.asia reviews the unraveling of Didi’s listing and upcoming pains for the financial sector.
Pre-IPO Origins
According to a «Wall Street Journal» report, Chinese officials had suggested Didi to delay its IPO due to concerns about U.S. government access to data on Chinese citizens through required audit documents.
Separately, an «SCMP» report citing sources close to regulators in Beijing said Didi may have «forced its way» to go public without completing data security checks by the CAC but noted that the process was not yet institutionalized as part of listing procedures.
«If Didi really had a problem, the regulators would have stopped the initial public offering,» one of the sources said.
CAC Launches Probe
While investors may have not been punished pre-IPO – unlike the listing reversal of Jack Ma’s Ant – they were hit after Didi’s $4.4 billion market debut.
On July 2, the CAC announced that it would begin investigating Didi and ban it from accepting new users during the review. It issued an order two days later asking to remove Didi’s app from China’s app stores, accusing the firm of illegal collection of personal user data.
Following the announcement, Didi responded in a statement to «Reuters» saying that it had no prior knowledge about the investigation.
Enraged Investors
Some investors have swiftly taken the matter to legal recourse.
Two U.S. shareholder lawsuits filed in federal courts in New York and Los Angeles late Tuesday with Didi executive and directors, including CEO Will Wei Cheng, alongside underwriters Goldman Sachs, Morgan Stanley and J.P. Morgan named as defendants.
The lawsuits claim that the company failed to disclose ongoing talks with Chinese authorities about compliance with cybersecurity laws and regulations.
More Pain for Investors
Since the February peak, the giants of China’s tech sector alone have seen over $800 billion of market value wiped out as authorities crackdown across industry beginning with Ant Group's listing reversal to antitrust probes, fintech restructuring, cybersecurity reviews and more is expected to come.
And the CAC could potentially further widen its net after launching investigations to another three apps on Monday run by Full Truck Alliance and Kanzhun over the same stated reason of «national security and data security».
Didi has already noted that its removal from China's app stores could damage revenue.
More Pressure for Banks
Year-to-date, a record $12.5 billion has been raised from 34 offerings from Chinese firms listing in the U.S., according to Refinitiv data, but the fresh rounds of regulatory pressures could dent the appetite for future IPOs alongside market trading – both key sources of revenue for global banks increasingly dependent on China.
This applies not only to China’s tech sector but the broader market due to the intention to revise overseas listing rules, including changes that require approval for firms structured in the so-called Variable Interest Entity (VIE) model before going public in Hong Kong or the U.S., according to a «Bloomberg» report.
«It suffices to say those Chinese companies already planning to list in the U.S. will have to pause, or even abandon the plans altogether, in the face of mounting uncertainties and confusions,» said Primavera Capital Group chairman and former Goldman Sachs Greater China chairman Fred Hu. «The U.S. market is off-limits, at least for now.»