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China tech crackdown drives selloff in Didi Global and affiliated firms

imageStock Markets22 minutes ago (Jul 06, 2021 10:29AM ET)

(C) Reuters. FILE PHOTO: The app logo of Chinese ride-hailing giant Didi is seen reflected on its navigation map displayed on a mobile phone in this illustration picture taken July 1, 2021. REUTERS/Florence Lo/Illustration/File Photo

By Scott Murdoch and Thyagaraju Adinarayan

HONG KONG/LONDON (Reuters) -Didi Global Inc shares fell as much as 25% in early U.S. trading on Tuesday in the first session since Chinese regulators ordered the company’s app be taken down days after its $4.4 billion listing on the New York Stock Exchange.

The ride-hailing giant’s app was ordered to be removed from mobile app stores in China on Sunday by the Cyberspace Administration of China (CAC), which had said it was investigating Didi’s handling of customer data.

The CAC on Monday also announced cybersecurity investigations into other Chinese companies whose parents have listed in the U.S., and those parents’ shares also slid.

Full Truck Alliance was down about 20% and Kanzhun Ltd was down about 8%.

The U.S. market was closed on Monday for the July 4 holiday.

Didi Global shares last traded at about $12, well below their debut price of $16.65 on June 30 – a fall of roughly $19 billion in market capitalization.

The Wall Street Journal reported on Tuesday, citing sources, that the company had been warned by regulators to delay the initial public offering (IPO) and examine its network security.

“With some news sources saying that Didi knew months in advance that a crackdown was coming, some people will start to have their doubts on governance of the company as well,” said Sumeet Singh, Aequitas Research director who publishes on Smartkarma. “If the crackdown was indeed planned months in advance, that would imply that it’s not going away soon.”

Didi said on Monday that the app’s ban would hurt its revenue in China, even though it remains available for existing users. It also told Reuters it had no knowledge of the investigation prior to the IPO.

“Didi’s app ban will hurt its user growth and, at the same time, the existing users of Didi’s app will also have a certain level of reservation over using the company’s app due to fear of compromising their personal data,” said Shifara Samsudeen, an analyst for LightStream Research who also writes on Smartkarma. “So it is obvious that Didi’s top line will be affected.”

Didi shares were sold at $14 each in the IPO, which was the largest listing of a Chinese company in the United States since Alibaba (NYSE:BABA) raised $25 billion in 2014. The company had been valued at up to $75 billion as of Friday.

CAC said it had ordered app stores to stop offering Didi’s app after finding that the company had illegally collected users’ personal data.

“Some investors may have taken comfort that going ahead with the listing was under the blessing of the authorities, when now we know it clearly wasn’t,” said Dave Wang, portfolio manager at Singapore’s Nuvest Capital.

Nuvest did not participate in Didi’s IPO.

China tech crackdown drives selloff in Didi Global and affiliated firms

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