Didi’s Regulatory Troubles Might Just Be Getting Started

In the paperwork Didi filed earlier than its preliminary public providing, the Chinese ride-hailing platform gave no scarcity of warnings to buyers that regulators in Beijing have been hovering.

After China’s web regulator, antitrust watchdog and tax authority summoned it and greater than 30 different web firms for a gathering in April, Didi mentioned, the corporate examined its operations and “uncovered a number of areas which could be deemed problematic from the compliance perspective.” Even although authorities officers performed on-site inspections, Didi mentioned it couldn’t assure buyers that it might keep away from penalties.

Those warnings barely hinted on the sudden clampdown that has reduce brief Didi’s coming-out occasion.

Shares of Didi misplaced a fifth of their worth on Tuesday and fell four.6 p.c on Wednesday. The firm closed at $11.91 — 15 p.c under its value when it debuted on the New York Stock Exchange per week in the past.

The plunge was born of a rapid-fire collection of actions taken by authorities businesses in Beijing, the place high policymakers declared this week that they’d intention to strengthen oversight of Chinese firms that, like Didi, listed their shares on exchanges abroad.

The company’s listing was completed at a breakneck pace. Didi filed preliminary paperwork on June 10. Two weeks later, it revealed an anticipated price range for its stock. Its shares were trading less than a week after that.

Failing to disclose prior awareness of market-moving regulatory decisions could make Didi and the banks that arranged the initial public offering — Goldman Sachs, Morgan Stanley and JPMorgan Chase — vulnerable to investor lawsuits and regulatory problems in the United States.

Representatives for the banks and the U.S. Securities and Exchange Commission declined to comment. Didi is represented in the United States by Skadden, Arps, Slate, Meagher & Flom, which did not immediately comment.

And a “large” number of cars on its platform may not have the necessary vehicle permit, Didi said in its I.P.O. documents. Cars used for online ride-hailing services in China must meet certain safety criteria to obtain such permits.

Top Chinese policymakers’ announcement this week that they would seek to tighten regulation of overseas-listed Chinese companies makes it a very real possibility that still other Chinese regulators could decide to take action against Didi. The government’s policy document published on Tuesday said stronger capital-market regulation should be combined with broader efforts to uphold national security and social stability, an indication of how seriously Beijing now treats such issues.

Different Chinese government agencies generally need to consult with one another, even if they do not necessarily coordinate outright on investigations of major companies such as Didi, said Wendy Ng, who studies Chinese competition law at the University of Melbourne. Sometimes, other agencies might push back if they believe the case is weak or their regulatory turf is being encroached upon.

“But in this environment, where it seems like the floodgates, at least at the moment, have opened to give regulators the green light to rein in the digital platforms, then it seems that it is much less likely that other regulators might resist,” Professor Ng said.

For instance, if China’s internet regulator determines that Didi failed to protect users’ data, that might feed into an investigation by the antitrust watchdog into whether the company did so to squeeze out its rivals, Professor Ng said.

“This is precisely what antitrust regulators are talking about all around the world: whether or not a breach of privacy could also be evidence of an abuse of dominance,” she said.

The United States is trying to tighten its own rules for foreign companies that list on American exchanges. Washington lawmakers who have called for U.S. regulators to have more power over Chinese companies are pointing to the mess at Didi to support their cause.

Source link Nytimes.com

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