As Drip travels to the U.S. but encounters harsh rectification by Chinese officials, Reuters quoted several sources as saying that another Chinese tech giant Weibo is quietly drawing up plans to privatize and delist with state-owned enterprises. Meanwhile, Chinese officials are signaling through different channels to strengthen regulation of Chinese stocks and maintain data sovereignty; the U.S. is demanding that foreign companies listed in the U.S. should comply with transparent disclosure norms.
Reuters: Weibo and Chinese companies join hands to push for delisting
Sina Weibo Chairman and Weibo’s largest shareholder Cao Guowei is working with a Shanghai-based state-owned company to form a consortium to push for the privatization of Weibo and its delisting from the U.S. Nasdaq, Reuters said on July 6, citing multiple sources.
The consortium wants to offer about $90 to $100 per share, the report said, in a deal valued at at least $20 billion and targeted to be finalized by the end of this year. The privatization could prompt Weibo’s second-largest shareholder, Alibaba, to exit.
Weibo issued a statement in the evening of Beijing time on the 6th to clarify that “rumors about the company going private are not true.”
However, the news sent Weibo shares up more than 40 percent at one point before the New York stock market opened. By 3 p.m. EST, Weibo shares were up about 6 percent at about $58 per share.
Beijing’s tightened regulation of Chinese stocks to maintain “data sovereignty”?
According to economist Hengqing Li of the U.S. Institute for Information and Strategic Studies, China’s big tech companies are looking for new ways to survive after the blocked listing of Ant Financial Services and the censorship and downgrading of Drip after its IPO.
“(Weibo) privatization is a way to roll in, and it’s impossible for a company this big to lie flat. The choice is not to go public, but to delist to avoid more regulation.” Li Hengqing said.
Earlier on July 6, China’s State Council issued a notice to strengthen regulation of Chinese stocks and said it would amend regulations related to IPOs of Chinese companies going abroad to “improve regulations on data security, cross-border data flow, and management of information involving confidentiality.”
The news, in turn, sent a number of popular Chinese stocks, including DDT, Poundworld, Baidu and Jingdong, down in the pre-market.
“Chinese technology companies are very happy to work with foreign investors, but the Chinese government sees the sector becoming increasingly sensitive in the context of Sino-US competition. Overseas listings of large platform companies carry the risk of sensitive data leaks that could be damaging to national security. The DDT incident will be followed by increased regulation and stricter scrutiny of overseas listings of Chinese technology companies. ” Xiaomeng Lu, senior analyst for geo-technology at Eurasia Group, a global political risk consultancy, told the station.
Last November, plans for a major IPO of Alibaba’s financial technology company Ant Group were halted after Xi Jinping personally intervened. Immediately afterwards, domestic tech giants including Alibaba, Tencent and Baidu faced scrutiny and overhaul from Chinese regulators amid Beijing’s emphasis on “data sovereignty.
In June, China’s National People’s Congress passed the “Data Security Law of the People’s Republic of China,” which will give the government more power to require private-sector companies to share data with government departments while limiting the ability of those companies to send data overseas. The law is set to take effect on Sept. 1.
DDT faces class-action lawsuit in the U.S. after being overhauled in China
As Weibo looks for a way out, another Chinese company that just went public in the U.S., DDT, is being hit from both inside and outside.
DDT went public on the New York Stock Exchange on June 30, raising about $4.4 billion, making it the largest public offering by a Chinese company since Alibaba Group Holding Ltd. However, two days later, China’s State Internet Information Office announced that it had launched a review of DDT for “preventing national data security risks and safeguarding national security.
Even though DDT executives said it was “absolutely impossible” to leak data to the U.S., the Office announced on July 4 that DDT had been required to take down the app due to “serious violations of the law in the collection and use of personal information. The commentary said that the Internet giants must not be allowed to become the rule makers in the collection and use of personal information, and that “the standards must be in the hands of the state”.
The news, which has only been listed for less than a week, has caused the stock price of DDT to fall hard. By July 6, it had fallen below its $14 offering price, a drop of more than 20 percent.
“The Chinese government has a lot of different departments and regulatory organizations, and I think when Chinese companies in particular are going to list overseas, they often get mixed signals; one department might say yes, another might call for a hold. “Tu Le, founder of consulting firm Sino Auto Insights in Shanghai, analyzed.
U.S. investors are not happy either. According to Business Wire’s website on the 4th, the U.S. shareholder rights law firm (Labaton Sucharow LLP) and the Rosen Law Firm are preparing to launch a class action lawsuit against DDT, arguing that DDT may have issued seriously misleading business messages to investors.
“This series of events has shown us that the Chinese government is willing to take a big swing at foreign investors as long as they believe they are doing the right thing for the country. “Tu Le, who is based in Shanghai, said, “That’s why China should stop black-boxing (operations), where it’s hard to know accurate liquidity data about how much innovation and investment is happening every day.
Chinese securities regulators have long prevented Chinese companies from cooperating with overseas regulation of their work, citing national security concerns, such as not allowing documents to be handed over to overseas regulators without Chinese government authorization or denying U.S. counterparts regular access to audit workpapers.
The Holding Foreign Companies Accountable Act, which was passed by Congress and signed into law by the president last December, requires Chinese companies to comply with U.S. auditing standards, and failure to do so for three consecutive years will result in delisting.