How can Didi Global and 200 other mainland Chinese companies delist from the US?
- Chinese companies can delist from a US securities exchange by either ‘going dark’ or ‘going private’
- A successful move by Didi Global to list in Hong Kong could pave the way for more than 200 US-listed Chinese companies who face heightened regulatory scrutiny
Ride-hailing giant Didi Global plans to delist from the New York Stock Exchange and launch a share offering in Hong Kong as early as the second quarter. Its success will provide a template for other Chinese companies looking to make the switch.
Currently, there are more than 200 mainland Chinese companies listed on US exchanges, which have come under increasing scrutiny from US regulators, right from their accounting standards to alleged ties to the military and use of forced labour in the Xinjiang autonomous region.
Here’s what they can do.
How does a company delist from a US exchange?
Chinese companies can delist by either “going dark” or “going private”, according to Stephen Chan Yiu-kwong, a partner in Hong Kong at law firm Dechert.
The primary difference is that a company that “goes dark” can continue trading on the over-the-counter (OTC) market after the date of deregistration, whereas a company that “goes private” can no longer trade after the delisting, he said.
The companies that want to delist must file a Form 25 to the Securities and Exchanges Commission, and issue a press release and post a notice on its website 10 days before the delisting takes effect.
If a company opts to go private, it has to buy out all the public shareholders, or allow them to exchange their shares for the company’s stock listed in other markets. It needs to seek shareholders’ approval for the privatisation, which can be an expensive and lengthy process.
“Going dark” is simpler and cheaper as it does not need shareholders’ approval. The company can voluntarily delist the shares from the exchange and move the trading to the OTC market.
Have any Chinese firms delisted from US bourses in the past?
Several companies have delisted for different reasons.
One of the earliest to do so was Focus Media, a Shanghai-based advertising services giant that was privatised in 2013. The company went private in a US$3.7 billion acquisition led by its founding chairman, global investment firm Carlyle Group and mainland private equity companies. It later listed in Shenzhen in 2015.
Luckin Coffee delisted from Nasdaq in June 2020, two months after its accounting fraud was exposed. The company has gone dark, or its shares are quoted over the counter. The stock closed at US$12.24 on February 16, almost five times above the level when it unveiled a debt restructuring scheme late last year.
Meanwhile, some Chinese companies have been forced to delist. Last May, the NYSE delisted China Mobile, China Unicom and China Telecom following an executive order signed by former president Donald Trump. Oil major CNOOC also suffered the same fate under an executive order for its purported ties to the Chinese military.
Can Didi’s shareholders oppose its delisting plan?
Didi will organise a shareholders meeting, allowing them to vote on the delisting plan.
What will happen to Didi’s shares?
“If Didi delists, one of the possible outcomes for the investors would be a share transfer,” Dechert’s Chan said.
Didi, which is pursuing a listing on the main board of the Hong Kong stock exchange, said it plans to allow its shareholders to convert their US American depositary receipts into Hong Kong shares.
Does Didi have to wait until the delisting to launch its Hong Kong IPO?
Chinese companies can explore alternative listings before the delisting process is completed in the US, according to Chan. Hong Kong is a popular listing venue for these companies because of its status an international financial centre.
Alibaba Group Holding, which owns this newspaper, JD.com and NetEase have all completed secondary listings in Hong Kong. US-listed mainland Chinese electric-vehicle makers Xpeng and Li Auto both launched dual primary listings in Hong Kong last summer.
Have Chinese companies pursued a Hong Kong listing after delisting from the US?
Yes, there have been a few. iDreamSky Technology listed on the Nasdaq in 2014 but was taken private in 2016. It subsequently listed in Hong Kong in December 2018.
In May 2016, eLong Cayman delisted from Nasdaq and merged with Tongcheng-Elong Holdings. Two years later, Tongcheng-Elong listed on HKEX.
Author: Enoch Yiu, SCMP