IPOs: Didi Kuaidi Steers Towards IPO, But Where?

By newsdoug on May 28, 2015

Bottom line: Didi Kuaidi’s IPO could come as early as the fourth quarter, with Hong Kong, China and New York standing equal chances of winning what could be the year’s biggest China Internet listing, worth up to $2 billion.

Just days after launching a massive promotion to attract new customers to its private hired car services, Didi Kuaidi is reportedly starting the process that could end with a major IPO for China’s largest taxi app operator by year end. Such a development wouldn’t come as a huge surprise, following the company’s formation earlier this year through the merger of 2 bitter rivals to create a Chinese market leader reportedly valued at up to $9 billion.

But equally interesting will be where this fast-driving company chooses to list. Just a year ago the answer would have almost certainly been New York, which is where most of China’s top Internet companies are traded. But a recent boom in China’s own stock markets and a new program that allows mainland investors to buy Hong Kong stocks have made Chinese Internet companies start to seriously consider both of these markets for IPOs as well.

Last year saw a bumper crop of Chinese Internet companies make IPOs, culminating with the record-breaking $25 billion listing for e-commerce giant Alibaba (NYSE: BABA) in September. Nearly all of the offerings were in New York, with just a handful of smaller gaming mobile companies like Linekong (HKEx: 8267) and Feiyu Technology (HKEx: 1022) opting for Hong Kong.

The preference for New York is largely a legacy issue, as most Chinese Internet companies had difficulty meeting listing requirements in both China, which traditionally favored state-run firms, and Hong Kong, which has strict profitability requirements. But that has begun to change recently, with Hong Kong and mainland investors showing a growing interest in Chinese tech stocks.

China’s own Nasdaq-style ChiNext market has become fertile ground for these companies. Many are trying to follow the example of the board’s most valuable player, online video superstar LeTV (Shenzhen: 300104), whose shares have soared 5-fold this year alone, giving it a market value of $23 billion. Hong Kong has also been kind to locally listed Internet giant Tencent (HKEx: 700), whose shares have risen 40 percent this year and now boasts a market value of nearly $200 billion.

Against that backdrop, let’s look at the latest report that simply says Didi Kuaidi is preparing to launch an IPO process that could see it list as soon as the fourth quarter. (Chinese article) Interestingly, this particular news comes at the very end of a longer article about resistance Didi Kuaidi has been facing from some of its private car drivers over aggressive business tactics, indicating the IPO process is probably still in its very early stages.

One of the company’s most recent aggressive tactics saw it announce a 1 billion yuan ($160 million) subsidy program for users of its private car services, as it attempts to take business from US giant Uber. That kind of aggressive tactic may be partly behind Didi Kuaidi’s rush to make an IPO, as it rapidly burns through cash in its battle for market share. Its biggest rivals are Uber and Yidao Yongche, which may be plotting their own alliance together with online search leader Baidu (Nasdaq: BIDU). (previous post)

If I were setting odds, I would say that New York, Hong Kong and China all stand equal chances of hosting this upcoming IPO, which could be worth up to $2 billion and could be the year’s biggest offering by a Chinese tech company. Hong Kong’s biggest advantage would be its recently launched Hong Kong-Shanghai connect program, which would allow Didi Kuaidi to sell shares to both international and domestic Chinese investors.

China’s big advantage would be its recent blistering stock market rally, which has seen the market more than double since last summer for no apparent reason. That rally has caught the attention of a growing number of overseas-listed Chinese companies, with formerly New York-listed Focus Media leading a wave of names looking to re-list at home.

Finally there’s New York, which should still stand a reasonable chance of attracting the Didi Kuadi IPO for a number of reasons. Chief among those is the fact that the company is probably still losing money, which would make a Hong Kong listing more difficult and might require an exemption. Equally important, New York is still giving rich valuations to industry leaders like Baidu and Alibaba, and Didi Kuaidi certainly fits that definition in the fast-emerging hired car services space.