Didi is expected to raise billions in the U.S. IPO, amid increased scrutiny

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Didi is expected to raise billions in the U.S. IPO, amid increased scrutiny
A logo of Didi Chuxing in Hangzhou in China’s eastern Zhejiang Province on Sept. 4, 2018. (STR/AFP via Getty Images)

WASHINGTON— This year has seen a record number of Chinese companies go public on the US stock exchanges. Didi Chuxing, China’s ride-hailing behemoth, is the latest company poised to go public in New York, defying an increased crackdown on Chinese companies listed in the United States.

Didi filed a prospectus for its initial public offering (IPO) on June 10, with plans to list its shares on the New York Stock Exchange or Nasdaq.

The company has been dubbed “the Uber of China,” and it has the largest market share in the country. It has a slew of notable backers, including Tencent, Alibaba, Japan’s SoftBank, Toyota, and Uber.

According to estimates, Didi plans to go public as early as next month in what could be one of the largest IPOs this year, with a valuation of $70 billion to $100 billion.

Following Didi’s announcement last week, outspoken China critic Sen. Marco Rubio (R-Fla.) issued a statement urging the Securities and Exchange Commission (SEC) to block the upcoming IPO.

“Every time the SEC allows companies like Didi to list on American exchanges, it sends desperately needed US dollars to Beijing and jeopardises American retirees’ investments,” Rubio said in a statement on June 11. “The Biden Administration should act to halt Didi’s IPO and collaborate with us on a legislative solution to prohibit all IPOs from unaccountable actors.”

According to Bloomberg, firms from the mainland and Hong Kong raised more than $7 billion in IPOs in the United States in the first five months of this year. Given last year’s sluggish IPO market, this is a remarkable rate.

Qilian International Holding Group Ltd., a drugmaker, was the first Chinese company to list its shares on the Nasdaq this year, while RLX Technology Inc., a maker of electronic cigarettes, issued $1.6 billion in shares.

Chinese firms continue to seek American capital, despite a new law enforcing more stringent disclosure rules that could bar them from the US stock market if they refuse to be transparent and follow the same rules as US companies.

Last December, then-President Donald Trump signed the Holding Foreign Companies Accountable Act into law in order to protect American investors from companies that do not adhere to U.S. audit standards. The bill was passed unanimously by Congress in order to focus primarily on Chinese companies that have come under intense scrutiny for engaging in fraudulent accounting practices.

For more than a decade, US regulators have been unable to inspect audit firms based in China. The Chinese regime has barred audits of Chinese-based companies, citing national security and privacy concerns as justifications for noncompliance.

The law, on the other hand, addresses the issue by requiring companies to delist from U.S. exchanges if they fail to meet U.S. audit oversight standards for three consecutive years. Firms must also disclose whether they are owned or controlled by a foreign government, including China’s communist regime.

Due to links to China’s military, some China-based companies, including the three major Chinese state-owned telecom providers and the energy firm China National Offshore Oil Corp., were recently delisted from U.S. stock exchanges as part of an executive order issued by Trump last year.

These actions, however, have had little impact on Chinese firms like Didi, which are preparing to go public in the United States.

Didi, according to Rubio, will refuse to comply with the new rules and will eventually be delisted from American exchanges. He sees no point in allowing Chinese companies to issue shares in the United States if they are already in violation of US regulations.

In May, Rubio and Senator Bob Casey (D-Pa.) introduced the bipartisan No IPOs for Unaccountable Act, which would prohibit Chinese companies from issuing stock that does not meet U.S. audit standards.

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