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Didi embarks on ultimate IPO road-test

3 minute read

A taxi driver is reflected in a side mirror as he uses the Didi Chuxing car-hailing application in Beijing, China, September 22, 2015. REUTERS/Jason Lee

HONG KONG, June 11 (Reuters Breakingviews) - Didi is cruising headlong into some rocky terrain. The Beijing-based ride-hailing giant on Thursday unveiled plans to go public in New York. Growth has resurged, but exuberant markets, U.S. political pressure and technology crackdowns will put this initial public offering to the ultimate road-test.

The company, valued privately at some $60 billion last year according to Pitchbook, built its Chinese dominance with deals. It merged with rival Kuaidi Dache in 2015 and then bought the local operations of Uber Technologies (UBER.N), which now owns 13% of Didi. It also has raised more than $20 billion in funding from the Softbank Vision Fund, Tencent (0700.HK) and others.

All that capital has paid for customers and expansion. Didi reported 377 million active users in China for the year ended in March. It is also now building out in freight, finance and beyond in 15 countries. China’s pandemic recovery helped the top line more than double in the first quarter, to $6.4 billion, and Didi even generated a net profit largely thanks to some investment income.

The gross bookings, before stripping out the large percentage that goes to drivers, pales against the $20 billion Uber delivered in the same quarter. Overseas initiatives and heavy investment in areas including electric vehicles and autonomous driving are also costly. Boss Will Wei Cheng is committed to chasing such growth: Didi plans to use 30% of the IPO proceeds to expand its international reach.

As prospective investors run the rule over the numbers for what might be the biggest U.S. market debut of a Chinese company since Alibaba, there are other sticky matters to consider. Didi is under domestic regulatory pressure to treat drivers better. It also was among those hauled in by the Ministry of Transport for allegedly charging unreasonably high commissions and implementing irregular pricing rules. Its sheer heft poses a potential problem as Beijing’s trustbusters squeeze the technology sector.

What’s more, the S&P 500 index is trading at an all-time high. And American lawmakers, frustrated by the lack of accounting oversight and other concerns, keep angling to starve Chinese companies of U.S. capital. With valuation figures of $100 billion – bigger than Uber’s market capitalisation – kicking around, the Didi fare could be pretty steep.

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- Chinese ride-hailing company Didi on June 10 submitted documents to U.S. securities regulators for an initial public offering in New York.

- It did not reveal the size of the offering, but Reuters cited unnamed sources saying the company, which filed under the name Xiaoju Kuaizhi, could raise about $10 billion and seek a valuation of close to $100 billion.

- Goldman Sachs, Morgan Stanley, JPMorgan and China Renaissance are underwriting the IPO.

- Didi’s revenue more than doubled to 42.2 billion yuan ($6.4 billion) for the three months ended in March from the same period a year earlier. It reported a net loss of 10.7 billion yuan in 2020 on revenue of 142 billion yuan.

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