China tech crackdown wipes out billions from Didi, other US-listed firms

Didi Global Inc shares slumped as much as 25% in US pre-market trade on Tuesday, ahead of its 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 followed an official investigation into the company's handling of customer data.

Other US-listed Chinese companies including Full Truck Alliance and Kanzhun Ltd were also set to open lower on Tuesday after the CAC on Monday announced cybersecurity investigations into their affiliated companies.

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

In pre-market trade on Tuesday, Didi shares fell as much as 25% to $11.59, well below its debut price of $16.65 on June 30. At that pre-market level, Didi is set to shed nearly $19 billion in market capitalisation.

By 1038 GMT, the stock was down 20%.

"In terms of fundamental impact that (share price fall) is a bit harsh, in our view," said Sumeet Singh, Aequitas Research director who publishes on Smartkarma, told Reuters.

"But 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."

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

"And if the crackdown was indeed planned months in advance that would imply that it's not going away soon, which might explain the large share price correction," Singh added.

Didi said on Monday the app's ban would have an adverse impact on its revenue in China despite it remaining 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," Shifara Samsudeen, LightStream Research analyst who also writes on Smartkarma, said.

"So, it is obvious that Didi's top line will be affected."

Regulatory action

Shares in Full Truck Alliance were down 16% in the pre-open trade, while Kanzhun was trading more than 10% lower.

"I think the recent Chinese regulatory actions against Chinese companies that have just listed in the US may raise a few eyebrows in Washington," David Chao, global market strategist at Invesco, told the Reuters Global Markets Forum.

"I don't think there will be a boycott of Chinese companies by US investors - many recently listed Chinese companies in the US have done very well."

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 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.

A sharp sell-off in Didi shares would further dent confidence of its investors, who were shocked by the announcement of a probe into the ride-hailing firm just two days after its New York stock market debut.

"I think 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.