Didi’s red-hot IPO is seeing the shadow of Chinese antitrust scrutiny

Upcoming IPO…and scrutiny?
Upcoming IPO…and scrutiny?
Image: Reuters/Thomas Peter
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It’s starting to feel like Beijing is always at odds with its tech champions.

Didi Chuxing, China’s largest ride-hailing firm, is gearing up for its blockbuster IPO in the US that could come as soon as next month. The highly anticipated flotation could become one of the biggest tech listings this year, which already include Chinese short video app Kuaishou’s $5.3 billion float in Hong Kong, and dating app Bumble’s $2.2 billion US listing, both in February. Didi will be seeking a valuation above the $62 billion it was valued at in its funding round in 2019.

However, Didi’s upcoming IPO could now be overshadowed by China’s expanding antitrust scrutiny of its tech giants. China’s top market regulator, the State Administration for Market Regulation, has opened an investigation into whether the firm has used any unfair competitive practices against smaller rivals, according to a Reuters report today (June 17). In addition, the regulator is also looking at the firm’s pricing mechanisms for its ride-hailing services, according to the report. A company spokesperson said Didi does not comment on “unsubstantiated speculation from Reuters’ unnamed sources.”

In April, China’s markets regulator, alongside two other regulators, required Didi and over 30 other major internet companies to conduct a self-inspection within one month to examine and correct any possible violations of anti-monopoly and anti-unfair competition rules, and other related laws and regulations, according to Didi’s IPO filing submitted last week. Didi said it has completed the inspection as of the date of the prospectus. In May, Didi and nine other ride-hailing and freight delivery service providers were summoned by Chinese authorities, which grilled the firms over arbitrary pricing mechanisms and high costs for drivers.

“We cannot assure you that the regulatory authorities will be satisfied with our self-inspection results or that we will not be subject to any penalty with respect to any violations of anti-monopoly, anti-unfair competition, pricing, advertisement, privacy protection, food safety, product quality, tax and other related laws and regulations. We expect that these areas will receive greater and continued attention and scrutiny from regulators and the general public going forward,” Didi said in the prospectus.

Although the SAMR has yet to confirm the investigation into Didi, and the impact of it on the IPO is also unclear, the timing of the revelation of the news is a reminder of Beijing’s ambush-style scrutiny of companies ahead of their big events. In November, Chinese regulators suspended the $37 billion IPO of Ant Group only days before its debut, reportedly over its controlling shareholder Jack Ma’s speech critical of regulators ahead of the listing.

Ever since then, Beijing has tightened its oversight of the once high-flying tech sector, which it worries has become too powerful. In April, Alibaba was fined $2.8 billion, which amounts to around 4% of the e-commerce giant’s China revenues in 2019, for its monopolistic practices including the so-called “pick one from two” tactic that sought platform exclusivity from merchants. Meanwhile, Alibaba rival Tencent could also face an around $1.5 billion antitrust fine from regulators, according to Reuters.