After Didi’s disastrous IPO, China looks to extend its control over overseas listings

The Cyberspace Administration of China (CAC) — the country’s powerful internet watchdog — this weekend proposed that any company with data on more than one million users must seek the agency’s approval before listing its shares overseas. It also proposed companies must submit IPO materials to the agency for review ahead of listing.

The CAC cited concerns about whether data and personal information held by companies trying to list overseas could be “affected, controlled or maliciously exploited by foreign governments” after a listing. The agency said it will seek “public opinion” on the draft rules, which were published Saturday, before they are formally adopted.

The move shows how much Beijing is broadening its control over the tech sector. The CAC is the same agency that banned Didi, China’s largest ride-hailing service, over “seriously violating laws” about data collection and usage, from app stores days after the company went public in the United States.

The CAC’s influence in China has ballooned over the years, since President Xi Jinping set up the agency as it currently operates in 2014 in the name of protecting China’s internet and data security. Xi’s move came after former US National Security Agency contractor Edward Snowden leaked US intelligence secrets in 2013, sparking a global firestorm over privacy and security.

The CAC on Friday also punished Didi even further, banning 25 of the company’s other apps and accusing them of violating laws around collecting and using personal information. The apps include Didi Enterprise, Uber China (which Didi bought from Uber in 2016) and other apps designed for different services, from ride-hailing to financial programs.

Didi said Saturday that it would comply with the regulator’s requirements and “rectify its problems.”

Didi’s stock clawed back some of its recent losses in New York on Friday, closing at about $12 per share. Even so, that’s below its IPO price of $14 — the equivalent of about $9.6 billion lost in market value.

Other Chinese regulators have been pressuring tech, too. Over the weekend, the State Administration of Market Regulation blocked Tencent’s plan to merge two of China’s top video game streaming websites, Huya (HUYA) and Douyu (DOYU). The regulator cited concerns that the merger would give Tencent — which is the largest shareholder in each website — too much control over the marketplace. Huya and Douyu are publicly traded in New York and have a combined market capitalization of $5.3 billion.
Tencent (TCEHY) said Saturday that it would cooperate with regulatory requirements and operate in compliance with laws and regulations.
Tencent’s shares declined 2% on Monday in Hong Kong, adding to the losses that have been mounting for months. The stock has declined more than 30% from a late January peak, shedding $294 billion from its market capitalization.

Robinhood files confidentially for IPO despite disastrous start to 2021

The confidential IPO filing suggests that Robinhood plans to capitalize on the flurry of retail trading that the startup helped set off with its zero-commission business model.
Robinhood has selected Nasdaq to list its shares on, a separate source familiar with the matter told CNN Business. News of the confidential IPO filing was first reported by Bloomberg News.

A Robinhood spokesperson declined to comment.

Other prominent startups, including Airbnb, Lyft, Slack and Palantir, filed confidentially to go public. That route route allows companies to privately file a registration statement, known as an S-1, with the SEC for review — without divulging their financial details for now.

Eventually, Robinhood will be required to release those numbers so investors can evaluate the company’s growth trajectory and key risks. It will be at least several months before the S-1 filing is made public, one of the sources told CNN Business.

GameStop saga set off cash crunch

Robinhood set off a firestorm in January when it temporarily banned users from buying shares of GameStop and other stocks driven up by an army of traders on Reddit. Robinhood blamed the controversial restrictions on a demand from its clearinghouse to put up as much as $3 billion due to the market volatility.

Robinhood was forced to rapidly draw down its credit lines and swiftly raise $3.4 billion, underscoring the apparent liquidity crisis facing the startup.

The episode raised questions about Robinhood’s business model and management team and tested the brand’s loyalty among users.

Robinhood was also sued earlier this year by the family of a 20-year-old trader who died by suicide after he saw a negative balance of $730,000 in his trading account and mistakenly believed that was the sum of money he owed. The tragedy drew attention to the gamified nature of the Robinhood platform and the startup’s customer service shortfalls.

Red-hot markets

Under normal times, Robinhood’s stumbles might doom an IPO, raising questions about whether the company is ready for the limelight. But these aren’t normal times.

Rock-bottom interest rates, combined with a surging interest from retail investors and optimism about the economic recovery, have set off a boom in financial markets. US stocks are trading near record highs, valuations are lofty and signs of market froth abound.

Investors are pouring money into blank-check companies known as SPACs, a trend that has recently been backed by professional athletes and other celebrities. Traditional IPOs are also very hot.

US-listed traditional IPOs have raised $34.9 billion so far in 2021, nearly five times what they raised through the same period last year, according to Dealogic stats as of March 19. That’s the highest for this point of any year since 1995.

Over the past six months major companies including Coupang, Bumble, Snowflake, Airbnb and DoorDash all have skyrocketed in their first day of trading.

The average first-day pop for US-listed IPOs is 44%, the highest since the dotcom bubble in 2000, according to Dealogic.

A key question for investors scrutinizing Robinhood’s books will be how its explosive user growth was impacted — if at all — by the GameStop saga.

Despite the controversy, January was a near record month for Robinhood app downloads, according to a late January report by JMP Securities.

This is a developing story.