Didi Stock Crashes Due to Chinese Regulatory Probe
Just days after going public through a traditional initial public offering (IPO), shares of Chinese ride-sharing giant Didi Global (NYSE: DIDI) have crashed after the company confirmed that the Chinese government is investigating the company over cybersecurity practices.
Didi had priced its IPO last week at $14 per American Depository Share (ADS), with the stock now dipping below that debut price.
As of 12:15 p.m. EDT on Tuesday, Didi shares were down 21%.
China wants more oversight over user data
Last Friday, China’s government said that it had launched a cybersecurity investigation into Didi, causing the stock to drop by 5%. The company followed up by announcing on Sunday that its app had been taken down in China by the Cyberspace Administration of China (CAC) over potential violations of local laws and regulations regarding the collection of personal information.
The app is no longer available for new users to download, although existing users who had previously installed the app can continue using it.
“The Company will strive to rectify any problems, improve its risk prevention awareness and technological capabilities, protect users’ privacy and data security, and continue to provide secure and convenient services to its users,” Didi said in a statement. “The Company expects that the app takedown may have an adverse impact on its revenue in China.”
Other than a suspension on new user registrations and the app takedown, Didi continues to operate normally. Furthermore, the Chinese government is planning to increase its oversight of Chinese companies that are listed on international stock exchanges in order to better regulate the flow of data and information.
Ahead of Didi’s IPO, Chinese regulators had urged the company to delay its debut in order to strengthen its network security protocols, according to The Wall Street Journal. Companies that list in the United States face much more stringent disclosure requirements, which reportedly caused consternation within the CAC.
Didi moved forward with the IPO due to pressure from early investors such as venture capitalists, according to the report.
The moves come amid a broader crackdown in China’s technology sector as the government seeks to guard user data, keeping the information in The Middle Kingdom and attempting to prevent user data from falling into the hands of foreign entities, including both companies and governments.
China has strict rules requiring user data to be stored within the country, although the government has concerns that network equipment provided by international suppliers could be susceptible to cyber attacks.
In its prospectus, Didi warned investors of the regulatory risks it faces.
The company wrote: “Changes in existing laws or regulations or adoption of new laws and regulations relating to privacy, data protection and information security, particularly any new or modified laws or regulations that require enhanced protection of certain types of data or new obligations with regard to data retention, transfer or disclosure, could greatly increase the cost to us of providing our service offerings, require significant changes to our operations or even prevent us from providing certain service offerings in jurisdictions in which we currently operate or in which we may operate in the future.”
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