So much for the close, high-level relations former Goldman Sachs boss Hank Paulson talked up in his 2015 book Dealing with China. Last Wednesday, shares in Didi Chuxing started trading following a US initial public offering led by US investment banks. On Sunday, Chinese regulators blocked the ride-hailing app from online stores.
China explicitly cited data security worries. An implicit reason is likely too: official annoyance at the flood of US IPOs by Chinese tech groups. So far this year, 34 companies have raised a record $12.4bn.
Didi’s $4.4bn share sale left it capitalised at $80bn — until news of the app store ban sent shares tumbling. Chief executives and bankers know Chinese tech groups that float in the US face similar retribution.
Regulators are also probing Full Truck Alliance and Kanzhun. The road freight app and the online recruitment group both listed in New York last month. They are banned from signing up new users during the investigations. That calls for a revision of fat valuations, which on an enterprise-value-to-sales basis stands at more than 39 times.
All three companies rely heavily on China for sales. More than 90 per cent of Didi’s first-quarter revenue came from home. Kanzhun and Full Truck Alliance’s biggest market is China, with the latter relying on new membership fees from truck drivers in 300 local cities for growth.
Didi now finds itself a football in the dirty east-west kickabout for data dominance in place of ByteDance. The ride-hailing group has denied allegations it handed over Chinese user data to the US. Confirmation that all its Chinese user and navigational data are on Chinese servers may now trigger US data worries instead.
Prudent bankers and bosses would only have launched US IPOs after taking soundings with Chinese officials. They were either talking to the wrong people or the mood changed.
Unless regulators give the trio a clean bill of health with unwonted speed, investors will be the victims. US banks would also see far less fee income from Chinese listings in the second half of this year.
The Lex team is interested in hearing more from readers. Please tell us what you think of Chinese regulatory action against New York-listed tech groups in the comments section below
