China’s big tech crackdown puts dozens of US IPOs at risk

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(Bloomberg) — Chinese companies hoping to list in the United States now face an even tougher task in offering their shares to potential investors.

While Beijing is investigating Didi Global Inc. — the Chinese version of Uber — and two other companies making their debut on Wall Street, global stock managers are questioning whether the regulatory threat posed by the Asian country’s growing efforts to control big data is worth the risk taking.

“Didi’s situation reinforces the fact that China is alarmed by the influx of US IPOs by Chinese technology companies, and is trying to slow the reception of these in the West,” said Hans Albrecht, portfolio manager at Horizons ETFs Management Canada Inc. “While Chinese names seem to be of better value, they will suffer from this burden for some time.”

Beijing’s latest crackdown on the tech industry threatens to dampen investor sentiment at a time when there have been as many as 34 pending listings of US companies in China or Hong Kong announced this year, according to data compiled by Bloomberg. Such deals have been taking place at a record pace, with more than $15 billion priced in New York IPOs so far this year.

QuickTake: What is Didi and why is China cracking down on it?

Didi shares fell more than 25% in the pre-US market as trading resumed after Monday’s holiday. It follows a 5.3% drop on Friday after China said it had begun a cybersecurity review of the passenger carrier. The regulator said two days later that the company had committed serious violations in the collection and use of personal information. Then I ordered the company’s app to be removed from the stores.

China is also investigating Kanzhun Ltd. Ltd., owner of an online recruitment platform, and Full Truck Alliance Co., Ltd. Both companies were recently listed in the United States. Their shares also fell in pre-market trading on Tuesday.

“The Chinese government could have stopped the IPOs, as they did with Ant,” said Sherif Farha, portfolio manager at Safehouse Global Consumer Fund in Dubai. Instead, they let global investors take the pain, thus losing confidence with a lot of foreign investors. Although we did not participate in any of these lists, we imagine that many funds will consider exiting.”

The story continues

One company that is preparing to test sentiment soon is Hong Kong-based logistics and on-demand company Lalamove. It secretly filed for an initial public offering in the United States last month, according to people familiar with the matter, and is seeking to raise at least $1 billion.

Ipek Ozkardskaya, chief analyst at Swissquote Group Holdings SA, said the recent crackdown is “very bad news for the image of these Chinese companies abroad”. “It is a terrible blow to the appetite of foreign investors.”

Read: Didi explains that China’s tech giants must first respond to Beijing

(Adds Didi’s share movement in the fifth paragraph.)

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