Didi – Desperate times.

Didi is in desperate peril.

• Didi Global CEO and founder Jean Liu is hoping that making an exit is going to save her company, but all of the evidence points towards a far bleaker outcome.
• Sources at Reuters (see here) are claiming that Jean Liu is planning her exit and that she has advised colleagues who followed her to Didi from Goldman Sachs, to do the same.
• To me, this looks like a last-ditch attempt to reduce the regulatory pressure on the company which on its current trajectory looks like it will drive the company out of business.
• As it stands today, Didi is being investigated by the Cyberspace Administration of China (CAC) and as a result of that investigation, its ability to sign up new users has been paused.
• This suspension alone has been devastating for the company and I estimate that in a period of just a few months, it has already ceded half of its opportunity (see here).
• The problem is that, like Jack Ma, Jean Liu has incensed the authorities by pushing ahead with the IPO when the CAC was raising concerns with regard to cybersecurity.
• Jack Ma has gone from a flamboyant, high-profile, and outspoken billionaire founder to a total recluse simply because he made the powers that be very cross when he criticised the banking sector in public.
• The result was the total disappearance of Jack Ma and the destruction of the fintech company he created and owned, Ant Global (see here).
• It looks like Jean Liu has committed a similar sin by pushing ahead with the IPO and the consequences are likely to be dire.
• She appears to be hoping that by clearing out the management team from Didi, the company will be saved but I am not so sure.
• The expectation is that Didi will become a state-owned company but the problem with this is that the state is already incentivised to drive Didi out of the market.
• This is because instead of taking ownership of Didi, the state has taken ownership of one of its rivals instead.
• Government entities have invested $591m in Cao Cao Mobility and now have an incentive to ensure that Didi goes out of business, leaving the market for others to take.
• It is not impossible that the state also takes over Didi as the banking sector is dominated by 4 large banks all of whom ultimately are state-owned, but ride-hailing is a winner takes all business, unlike banking.
• Hence, I don’t see any let-up to the regulatory pressure on Did and I don’t think that Jean Liu and her team’s departure will make much difference.
• Hence, I think that the outlook is deteriorating fast for Didi, and I would not want to be around when it next reports to the market.
• As a foreign issuer, it does not have to report quarterly but nothing stops it from doing so should it so desire.
• So far it does not desire to do this and is keeping schtum implying that it has nothing but bad news to impart.
• I would sell it immediately at any price as the actions of the state imply that it intends to drive the value of the company to $0.