Hello everyone. Today I want to talk to you about Didi, a ride hailing company that was to be China’s answer to Uber. DIDI IPO’d on 06/30/2021 at a share price of $14. Currently, DIDI is trading at around 50% less than it’s IPO price at $7.27, and down over 60% from it’s ATH of $18.01.
On 12/27/2021, DIDI will have 316.8 million IPO shares unlocking for trade. DIDI has a massive float of 4.35 billion, and has a 3 month trading average of only 20 million shares.
We might see some nice selling pressure on 12/27 with the unlocking of these shares due to all of the negative catalyst that DIDI has going for it currently.
The first catalyst would be that on 12/03/2021, DIDI announced that they would be withdrawing their shares from the U.S. stock exchange and moving primarily to the Hong Kong exchange. This is coming from China putting pressure on the company to delist due to a cybersecurity leak issue that the Chinese government found concerning. This news caused a pretty nice selloff of DIDI along with other Chinese stocks. DIDI isn’t planning to file with the Hong Kong exchange until 03/2022, so the entire process of delisting could take 3 to 6 months.
Didi said it aims to list on the Hong Kong Stock Exchange and ensure that its American depository shares can be swapped for “freely tradable shares of the Company on another internationally recognized stock exchange,” according to a statement.
So another catalyst for a large sell off could be that swapping the U.S. shares for stock in Hong Kong should be relatively straightforward for most institutional shareholders, but the new securities may trade with a valuation discount. This is in part to the fact that Hong Kong has long been home to some of the world’s lowest price-to-earnings ratios. So any institutions holding locked up shares may want to part ways with DIDI as soon as they can.
I will be paying closer attention to DIDI’s movement over the next couple of days so see what kind of recovery it has if any. OI for 12/31 and 01/21/22 calls and puts is looking pretty decent right now so might look for an entry for one of those dates.
I do not currently hold any positions. This is not financial advice. Please do your own research.
An alternative school of thought - as part of the delisting, would they perhaps offer to buy back shares at around the previous IPO price to make good any losses suffered by investors to mitigate litigation as a result of the whole shitshow around side stepping mainland China government approvals to rush their US listing?
If this is the case, there could be potential support around the previous IPO price of $14. Now the current market price seems to suggest this the market doesn’t believe this is likely but it may be worth some further digging
Keeping this thread updated in preparation for the IPO share unlock on 12/27. Been playing puts on this since the news of DIDI delisting from the U.S. exchange. It’s has been dropping substantially so the question of “how much lower could it go?” is at play, but we also asked the same question about HOOD during their IPO share unlock. And we’ve all seen how that’s has panned out.
Here is a little hopium from Rueters. Found this decent article that discusses the delisting Chinese stocks. It mentions DIDI specifically. This is the part I found most interesting and was something I hadn’t considered yet;
" Meanwhile, retail U.S. investors with no access to Hong Kong’s markets have begun dumping Chinese ADRs after the U.S. Securities Exchange Commission(SEC) this month finalised rules to kick non-compliant Chinese companies off American exchanges in three years."
I wonder how many IPO shares are held by retail investors just waiting for their first chance to unload and how much more is currently owned by retail that can’t/won’t swap shares? I’m watching this one this week.
Today is the day that 316 million shares unlock for DIDI. Should be some volatility present as I believe selling pressure will be heavy with the upcoming delisting of DIDI off of U.S. exchanges. DIDI has fallen a good bit over the last few weeks and OI for calls between $6 - $10 is pretty decent for this week, but I would expect it to be a nice place for puts instead given their situation.
Update: This play is now jeopardized due to an announcement from DIDI the day after shares unlock that current and former employee shareholders will not be allowed to sell their shares for a certain period of time that is TBD. I feel DIDI will simply float around it’s current share price for the time being until more news comes out.
