Didi Global's 11-month ride on the New York Stock Exchange came to an end last Friday as the company withdrew its listing in hopes of persuading Beijing to allow the ride-hailing operator to resume signing up new customers.
Didi has been in the doghouse with Beijing since it went forward with its $4.4 billion initial public offering a year ago on the eve of the Chinese Communist Party's centenary celebrations -- despite officials' concern that the listing could give American regulators access to sensitive domestic data. The authorities responded to Didi's defiance by ejecting its apps from leading app stores and instituting the new client ban.
Didi's shares, traded in the form of American depository receipts (ADRs), moved on Monday to the U.S. over-the-counter market, with its ticker changing from DIDI to DIDIY. The first day of the transition went well, with Didi's shares rising 7.4% to $2.46, but still far below the IPO price of $14.
So what does the move to OTC trading mean for the Chinese technology platform and its investors? Here are five things to know.
Didi Global had a solid debut on the OTC Pink Market on Monday, rising 7.4% and 12.2% on Tuesday
Didi Global had a solid debut on the OTC Pink Market on Monday, rising 7.4%. © Reuters
What is the OTC market?
In the OTC market, trades are made through a network of broker-dealers rather than via a central exchange like the Nasdaq Stock Market. Generally, OTC stocks see less trading and have less liquidity than those listed on major exchanges. On Monday, 24.5 million Didi shares changed hands, a fifth of the level seen on Friday on the company's final day on the NYSE.
OTC Markets Group, which operates an electronic marketplace for broker-dealers to trade OTC stocks, organizes such shares into three tiers. The Pink Market, where Didi will now trade, carries the lowest disclosure requirements.
"We don't know what is going to happen [with Didi]," said Jason Paltrowitz, executive vice president at OTC Markets. "We do anticipate it being a very actively traded market, and so long as it doesn't deregister [in the U.S.], it should perform quite well on our market."
What does the shift mean for investors?
Due to the potential complications and risks of the Pink Market, some retail platforms such as investment app Robinhood do not support such OTC trades. OTC stocks are usually also ignored by research analysts.
For investors who already held Didi ADRs in the U.S. before the move to OTC, they can continue to add to or reduce their positions via the Pink Market. Those who bought Didi ADRs through the Mexican Stock Exchange after it cross-listed there in October can also turn to the Pink Market as Mexican trading ended with the NYSE delisting, according to an exchange official.
The Pink Market need not be a dead end for investors. China's Luckin Coffee delisted from Nasdaq in June 2020 after an accounting scandal. Since shifting to the Pink Market then, its shares have increased nearly eightfold to $10.96 from $1.38.
Tencent Holdings, China's most valuable listed company, has also long traded on the Pink Market as do Mitsubishi Corp., LVMH Moet Hennessy Louis Vuitton and Nestle, among other major international corporations. But unlike Didi and Luckin, these companies have their primary listings in their own countries.
"It's the same investors that are connected into the [NYSE] that connect into us, and they have a great deal of experience," Paltrowitz said. "Things like Tencent trade on our market. So it's not significantly different for anybody."
Can Didi stay on the OTC market?
Didi is one of around 150 Chinese companies which has been notified by the U.S. Securities and Exchange Commission that it could face ejection from U.S. markets by 2024 due to Beijing's refusal to allow Washington regulators full access to their audit records.
While the process has been focused on the risk of companies being delisted from the NYSE and Nasdaq, lawyers say these companies' shares would also be barred from U.S. OTC trading under the terms of the 2020 Holding Foreign Companies Accountable Act.
Will Didi list elsewhere?
When Didi announced its plan to delist from the NYSE in December, it said it would seek to list on Hong Kong or another major international exchange so that NYSE stockholders could convert their holdings to new shares.
That plan was abandoned after Beijing officials made clear that they would not lift a ban on the company's adding new customers unless Didi first left the NYSE.
Even if Didi does proceed with a new listing in another market, Paltrowitz said Did would likely be able to continue to trade on the Pink Market.
What is next for Didi?
A person familiar with discussions in Beijing told Nikkei Asia last week that the authorities will require Didi to pay a fine before allowing it to resume signing up customers. But the person said officials were undecided on the magnitude of the unprecedented penalty.
Alibaba Group Holding, a Didi shareholder, has paid the highest penalty so far in China's crackdown on technology companies, swallowing a 18.2 billion yuan ($2.72 billion) fine for anti-competitive practices last year. Didi is expected to be penalized under data protection laws, among others.
A Didi product manager said last week that the company's apps have been readied for relaunch "soon."
Full Truck Alliance, which listed in New York around the same time as Didi and was penalized similarly, last week was allowed to begin taking on new clients through its main freight-delivery apps. That helped touch off a brief rally in its shares and those of Didi and Kanzhun, another penalized Chinese tech company.
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