Talk about buyer’s regret.
Didi shares crashed 20% on Tuesday after Chinese authorities opened an inquiry into Didi, the ride-hailing company that raised $4.4billion in a New York IPO.
Investors are not happy about the failed IPO. It is also bad news for New York Stock Exchange. This exchange has been targeted by US politicians to stop Chinese companies from raising capital in New York.
The political fallout was swift. Florida Republican Senator Marco Rubio was critical of the Chinese government and told the Financial Times it was “reckless” and “irresponsible” for Didi to be allowed to sell shares.
Rubio stated to the UK newspaper that even if the stock recovers, American investors don’t have any insight into the company’s financial strength. The Chinese Communist Party blocks US regulators from reviewing the books. This puts American retirees’ investments at risk and also funnels desperately needed US dollars into Beijing.
Months of political turmoil surrounding listing US companies have been charged. In November, former President Donald Trump signed legislation banning Americans from investing in companies that are owned or controlled either by the Chinese military or the US government.
This led to the US delisting of several Chinese companies from US exchanges, including China Mobile and China Telecom. The same path has been followed by President Joe Biden, who increased restrictions on US investments in Chinese companies that have suspected military ties.
The big question is: Why do Chinese companies still pursue US listing despite the political context?
Analysts believe that listing in New York has many benefits.
- Superior liquidity
- An enormous investor base
- Streamlined Listing Process
A US listing can be even more appealing for Chinese tech companies because American investors are familiar with dealing with startups. The US exchanges are more open to a wide range of valuation methods.
In recent years, Hong Kong tried to take business away from New York. Chinese companies were encouraged to sell shares of the city in what has been called “homecoming listings”.
However, New York’s appeal is strong. Jefferies reports that 10 Chinese companies issued US IPOs in 2020. This represents more than 20% of the US market, excluding SPACs. It is the highest level of US IPO issuance since 2010.
Didi was an extension of this trend. It was the largest US IPO of a Chinese company since Alibaba’s 2014 debut.
End of an era The United States is under increasing pressure. China announced Tuesday that it will increase regulation of overseas-listed businesses, adding pressure to Didi.
The government stated that it would punish all illegal securities activities including market manipulation and fraudulent share issuance. It stated that securities fraud is a major problem in foreign markets.
Is New York the next Didi or Alibaba? Keep watching.
Microsoft snatches huge cloud contract from Pentagon
The US Department of Defense has canceled a controversial cloud computing contract worth $10 billion that was awarded to Microsoft over Amazon by the Trump administration.
Tuesday’s announcement by the Pentagon was that it would cancel the Joint Enterprise Defense Infrastructure contract (JEDI). Instead, it will solicit new solicitations from Amazon and Microsoft for a revised contract.
Microsoft would have built a cloud storage system to protect sensitive military technology and data for the Pentagon under the JEDI contract. This could have generated revenue of as high as $10 billion over ten years.
The surprise win of Microsoft over Amazon in 2019 caused controversy. Many industry experts thought Amazon was the stronger candidate.
Amazon’s backlash: Amazon filed a lawsuit with the US Court of Federal Claims to contest the decision. They claimed that the decision was politically motivated by the dislike of Jeff Bezos, then Amazon CEO, and the Washington Post, which Bezos controls.
In a press release, the Pentagon stated that it had decided to cancel the contract due to “evolving requirements, increased cloud conservation, and industry advances.” According to the release, JEDI’s contract “no more meets its needs.”
Next: The department stated that it will solicit proposals from Microsoft Web Services and Amazon Web Services, and will also accept proposals by other Cloud Service Providers who “can also satisfy the DoD’s requirements.”
Biden might want to borrow from Trump’s OPEC strategy
Americans hate high gasoline prices. They tend to blame the White House, whether they are right or wrong.
This is why President Joe Biden has a major problem with Monday’s failure of OPEC and its allies not to agree to an increase in crude production.
Until now, Biden’s administration has been very hands-off with OPEC. This contrasts with Trump who was obsessive about tracking markets and repeatedly criticized OPEC for not pumping enough.
Matt Egan, my CNN Business colleague, reports that some analysts believe the Biden Team was caught up in the drama at OPEC.
Helima Croft (global head of commodity strategy, RBC Capital Markets), stated that “they are playing catch up.” “The early warning system used by the Biden administration wasn’t comparable to that used by the Trump administration. They might not have known how important the OPEC meeting could be.”
Despite the differences in style between Trump and Biden, you shouldn’t expect to see any threats to OPEC made in all caps.
Croft, a former CIA analyst, stated that “they’re not engaged with Twitter diplomacy.” “It’s a traditional playbook, where you pick up your phone and ask the question.”
Next
Minutes of the Federal Reserve’s June meeting will soon be available at 2:00 pm. ET.
Today: US Job Openings Data for May at 10:00 AM. ET
Tomorrow: US unemployment claims and the most recent readings on crude oil inventories.
Also Read: Digital Transformation Myths Busted