So this is a bit of an interesting play. DIDI has basically announced that they’re delisting from the NYSE. I’m not sure if their ADRs will be terminated as well, but that seems likely if they’re no longer going to be on the US markets.
There’s 2 likely scenarios from this:
The ADRs are terminated: The long dated options will likely be accelerated and cash settled. I sold some Dec 2022 and Jan 2023 $1 puts for $0.22, and these will likely expire worthless unless DIDI crashes hard before the settlement value is determined, which seems unlikely since the news is already out.
The ADRs are not terminated but there is no active market for them in the US: The options may remain physically settled, but without price discovery or the ability to trade the underlying shares, it’s unlikely that OTM option strikes will ever be exercised. It might take until the expiry date to resolve this, but chances are the options will expire worthless.
It is possible that they’re listed from the NYSE, and traded OTC, but that seems unlikely as the whole purpose of the delisting is because of china’s wrath that they listed in the US to begin with, and they hope to get back in china’s good graces by fixing their wrongs, which means not having their shares trade in the US markets. Even in this case, I believe that the shares have pretty much bottomed out since everything negative has pretty much occurred already to this company.
I’m not sure what exactly will happen here, but I’m getting the feeling that option holders will get screwed on this, so the play is to be short options on this.
The company said in a separate announcement it had notified NYSE of its intention and planned to file its delisting notification with the SEC on or after June 2. Trading in its shares would stop 10 days later.
Didi on Monday referred to its May filing in which it said it won’t apply to list its shares on another exchange until the cybersecurity review and any “rectification measures” are complete.
It said investors can trade shares over the counter, though it said whether such a market develops is outside the company’s control and warned that investors could be stuck with shares with “no practicable means of recouping any significant part” of their investment.
Cherry Leung, an analyst at Bernstein, said Didi was in limbo while Beijing’s regulatory crackdown persisted. “Didi is currently in a deadlock situation until the cyber security investigation in China is over,” she said.
“Regulators on the China side want Didi to limit disclosures to the SEC,” she said, noting that moving to over-the-counter trading would allow the company to stop filing financial reports with the US regulator and put its audit papers beyond the reach of the US Public Company Accounting Oversight Board.
Beijing does not allow the PCAOB to conduct inspections of audits done in China. Leung cautioned investor class action lawsuits in the US and compliance issues with Didi’s ride hailing business would be additional obstacles to a Hong Kong listing once the cyber security probe was settled.
So effectively it does seem like they will continue to trade OTC post delisting. FWIW, these do seem like levels where DIDI might be slightly undervalued, troubles and all. I took a small lotto position in the shares just cos I think it will likely bounce once they relist in HK and there may be some option to convert the shares for the HK-listed ones too
DIDI made me moister than an oyster when they had their share unlock after the announcement of the delisting and employees were banned from selling their shares. Puts printed so hard on that news.
Good find, it does seem like an OTC market will develop then if they’re not cancelling the ADRs.
Though them not having to file any financial information is a positive if you’re short volatility, since financial updates can cause the price to move.
I am aware they’re trying to list on hong kong. If they do that and cancel ADRs though, the options will still become cash settled as the deliverable is 100 ADRs, not the equivalent amount of hong kong shares. I’ve never heard of a deliverable being changed to require delivery of foreign shares (If anyone can find a case of this please do post it!)