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By Julie Zhu and Kane Wu
HONG KONG (Reuters) - Just five months after its debut, ride-hailing giant Didi Global said it plans to withdraw from the New York Stock Exchange and pursue a Hong Kong listing, a stunning reversal as it bends to Chinese regulators angered by its U.S. IPO.
Reaction from investors was swift: the company's shares fell 22.17%, losing about $8.4 billion in market value. At their Friday close of $6.07, Didi shares have fallen about 57% since their June 30 IPO price.
"Following careful research, the company will immediately start delisting on the New York stock exchange and start preparations for listing in Hong Kong," Didi said on its Twitter-like Weibo account.
Didi did not elaborate but said in a separate statement it would organize a shareholder vote at an appropriate time and ensure its New York-listed stock would be convertible into "freely tradable shares" on another globally recognized exchange.
Market participants said the decision ramps up uncertainty for investors in U.S.-listed shares of Chinese companies. U.S.-listed shares of Alibaba , Baidu and other Chinese firms fell on Friday.
"If you are a money manager and don’t understand what the rules are, it's easier to just sell and move your money where you better understand the rules of the game,” said Michael Antonelli, market strategist at Baird.
Sources told Reuters last month that Chinese regulators had pressed Didi's top executives to devise a plan to delist from the New York Stock Exchange due to concerns about data security.
Didi's board convened on Thursday and approved the U.S. delisting and HK listing plans, said two sources with knowledge of the matter.
Didi pushed ahead with a $4.4 billion U.S. initial public offering in June despite being asked to put it on hold while Chinese officials reviewed its data practices.
The powerful Cyberspace Administration of China (CAC) then quickly ordered app stores to remove 25 of Didi's mobile apps and told the company to stop registering new users, citing national security and the public interest.
Didi, whose apps, in addition to ride-hailing, offer products such as delivery and financial services, remains under investigation.
Redex Research analyst Kirk Boodry, who publishes on Smartkarma, said Didi may need to buy shares at the $14 IPO price to avoid legal issues and at the very least pay more than the current share price.
However, uncertainty remained over what the delisting means for investors. "There may also be some hope that by doing this, Didi management will improve its regulatory relations, but I am less confident on that," Boodry added.
The upending of Didi's New York listing - likely to be a difficult and messy process - underscores the huge clout Chinese regulators possess and their emboldened approach to wielding it.
Billionaire Jack Ma ran afoul of Chinese authorities after blasting the country's regulatory system, leading to the dramatic scuppering of a mega-IPO for Ant Group last year.
Didi's move will likely further discourage U.S. listings by Chinese firms and could prompt some to reconsider their status as U.S. publicly traded companies.
"Chinese ADRs face increasing regulatory challenges from both U.S. and Chinese authorities. For most companies, it will be like walking on eggshells trying to please both sides. Delisting will only make things simpler," said Wang Qi, chief executive of fund manager MegaTrust Investment (HK).
Didi plans to proceed with a Hong Kong listing soon and is not looking at going private, sources with knowledge of the matter told Reuters.
It aims to complete a dual primary listing in Hong Kong in the next three months and delist from New York by June 2022, said one of the sources.
The sources were not authorized to talk to the media and declined to be identified. Didi did not immediately respond to Reuters' requests for comment, and the CAC has yet to comment on its announcement.
"Not long after the IPO U.S. investors had been trying to sue DiDi for failing to disclose its ongoing talks with the Chinese authorities. This is unlikely to be taken any better," said William Mileham, an equity analyst at Mirabaud.
"It appears that DiDi are not waiting to be dual-listed, but could well be delisted from the U.S. before it starts trading on the HK stock exchange."
GRAPHIC-Didi's bumpy ride since listing in New York https://graphics.reuters.com/CHINA-DIDIGLOBAL/dwvkrzdjxpm/chart.png
HONG KONG HURDLES
Listing in Hong Kong, however, might prove complicated, particularly in a three-month timeframe, given Didi's history of compliance problems and scrutiny over unlicensed vehicles and part-time drivers.
Only 20%-30% of Didi's core ride-hailing business in China is fully compliant with regulations requiring three permits relating to the provision of ride-hailing services, vehicle licensing and drivers' licences, sources have previously said.
Didi's IPO prospectus said it had obtained ride-hailing permits for cities that together accounted for the majority of its rides. It has not responded to further queries about permits.
Those problems had been Didi's main obstacle to conducting an IPO in Hong Kong earlier and it is unclear whether the bourse will approve it now, sources with knowledge of the matter said on Friday.
"I don't think Didi qualifies to be listed anywhere before it ... sets up effective protocols to manage and ensure the drivers' responsibility and benefits," said Nan Li, associate professor for finance at Shanghai Jiao Tong University.
The Hong Kong bourse does not comment on individual companies, a spokesperson said.
Didi provided 25 million rides a day in China in the first quarter, its IPO prospectus said. Its main shareholders are SoftBank's Vision Fund, with a 21.5% stake, and Uber Technologies Inc, with 12.8%, according to a filing in June by Didi.
Sources have also told Reuters that Didi is preparing to relaunch its apps in China by the year's end in anticipation that Beijing's cybersecurity investigation of the company would be wrapped up by then.
(Reporting by Julie Zhu, Kane Wu, Cheng Leng and Zoey Zhang; Additional reporting by Brenda Goh, Josh Horwitz, Alun John, Sayantani Ghosh, Scott Murdoch, Marc Jones, Lewis Krauskopf and Ira Iosebashvili; Editing by Sumeet Chatterjee, Edwina Gibbs, Jan Harvey, Dan Grebler, Richard Chang and Aurora Ellis)