Frankly Speaking: Cautionary tale of the Didi listing

This article first appeared in The Edge Malaysia Weekly, on July 12, 2021 - July 18, 2021.
Frankly Speaking: Cautionary tale of the Didi listing
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The investment banks that led the listing of Didi Global Inc on the New York Stock Exchange earned a handsome fee for the exercise, which valued the company at US$68 billion (RM285 billion). Goldman Sachs and Morgan Stanley earned some US$88.7 million from the exercise, which made Didi the most valuable Chinese company listing in the US since Alibaba Group Holding in 2014.

But the fees that the investment banks earned may not justify the agony the advisers potentially face from the controversial listing. Investors have filed a class action legal suit against Didi and the investment banks for allegedly omitting important information pertaining to an assessment of its personal data protection by the Cyberspace Administration of China (CAC).

Apart from legal action, both investment banks face reputational damage, especially pertaining to the quality of their due diligence of foreign listings in the US.

Didi’s share price came under selling pressure after its listing on June 30 when news broke on the CAC’s review of Didi’s personal data protection framework.

Investors would want to know if the two top-notch investment banks did sufficient due diligence on the CAC’s investigations into Chinese ride-hailing app companies.

Goldman Sachs is just recovering from the 1Malaysia Development Bhd debacle, in which it admitted to taking its eyes off the fundraising activities of the state investment fund. It resulted in a few of its top executives in Asia facilitating the transfer of billions raised by the Malaysian fund to individuals, including fugitive Jho Low and local politicians.

Former prime minister Datuk Seri Najib Razak is on trial for the 1MDB fiasco.

The listing of Didi and the resultant disastrous performance is a stark reminder to investment banks on the critical role they play in assessing the valuations of new listings.

In Didi’s case, it has been reported that the CAC had advised the company to delay its listing until it completed its review of the company’s personal data protection. The ride-hailing app company, which raised US$4.4 billion from its listing, has denied any knowledge of the regulators advising it to delay the listing.

But the CAC’s clampdown affects the company’s operations, changes the dynamics and its valuations. Such information falls under the domain of investment bankers on whom investors rely.

 

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