Didi faces long and perilous journey to Hong Kong

Didi's road to Hong Kong may be paved with good intentions, but that will not make the journey any easier. China's US$38 billion ride-hailing group is eschewing its New York listing for one in the Asian hub amid pressure from Beijing. A take-private would be costly; migrating American depositary receipts could be tricky. Didi will have to navigate Hong Kong's tougher IPO requirements too. 

Fleeing New York just months after listing there will be deeply embarrassing for boss Cheng Wei, but it’s necessary and prudent. Despite opposition from cybersecurity watchdogs, Didi charged ahead with its June debut. Since then, a regulatory onslaught has led to its apps being removed from digital stores at home and new user registrations frozen. Leaving Broad Street should placate officials concerned that any sensitive data it holds could find its way to U.S. authorities. 

The company has yet to detail its road map and has only said it will ensure its American depositary shares will be convertible on another “internationally recognized” exchange. Assume Cheng opts for a full privatization, a management-led buyout at the initial offering price of US$14 a share – a 44 percent premium to current levels – will imply a total outlay of US$35 billion, assuming Didi's strategic backers like SoftBank Group's Vision Fund and Uber join the consortium. 

Without lavish state-backed funding, it's hard to see how the buyers can raise such financial firepower. Didi could theoretically move the ADSs temporarily to a venue outside the United States. But such transactions are rare and look more uncertain than a buyout. 

Relocating to Hong Kong may be just as hairy. The city’s tougher listing requirements were one reason Cheng chose New York in the first place. Previous discussions with the bourse operator foundered over scrutiny of the company’s mainland ride-hailing operations, some of which lack proper licenses, according to media reports and Breakingviews’ sources. 

Moreover, unlike New York, Hong Kong has typically limited the usage of complex offshore structures to the relevant parts of a company's business, not the whole. Compliance might require painful restructuring by Didi. Shareholders should brace themselves for a white-knuckle ride. 

(Reuters)