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Didi's IPO Flop: A Breakdown of the Fact Pattern
Didi Chuxing, a Chinese ride-hailing service, recently experienced a significant drop in valuation after regulatory authorities cracked down on the company. In this article, we will break down the fact pattern of what happened, discuss some themes that can be applied to the evaluation of any Chinese Tik firm in the future, and make some mild speculations about what may be coming in the future.
- Didi IPO'd on June 30th, raising $4.4 billion at a valuation of $67 billion.
- Two days later, the Cyberspace Administration of China announced a cybersecurity review of Didi over its data collection practices.
- Two days after that, the same agency banned the downloading of Didi from all app stores within China.
- Didi's valuation took a 30% hit in the following week.
- Skepticism towards Chinese-based companies due to past fraud scandals and a lack of auditing standards.
- The power of regulatory bodies in China to heavily impact businesses.
- The importance of understanding the motivations and actions of the Chinese Communist Party.
- The goal of Chinese companies going public in international markets to reach a larger pool of investors and avoid regulatory constraints within China.
- The regulatory scrutiny may continue to affect Didi's valuation in the future.
- Other Chinese-based companies going public in international markets may face similar challenges.
- It is important for investors to understand the potential risks and complexities of investing in Chinese equities.
The recent events surrounding Didi's IPO serve as a reminder of the unique challenges and risks associated with investing in Chinese-based companies. It is important for investors to do their due diligence and stay informed about regulatory actions and potential impacts on businesses.
DIDA CHUXING Introduction
- Music China has the largest number of private passenger vehicles in the world, but underutilization of transit capacity is becoming a serious problem.
- DDA is a technology-driven mobility platform in China, offering carpooling and taxi hailing services.
- DDA has ranked number one and two in the carpooling and taxi online hailing markets in China, respectively, in 2019.
Benefits of DDA Services:
- DDA offers compelling values to all riders, private car owners, taxi drivers, municipal or district taxi associations, and regulatory authorities in China.
- DDA's carpooling services provide convenience, comfort, and cost savings, while also contributing to greener commuting initiatives.
- DDA's taxi hailing services offer real-time location tracking, intelligent taxi roaming, and other handy features to improve the overall ride experience.
- DDA is working with regulatory authorities to carry out a new taxi mobility strategy, aimed at creating more transit capacity with less environmental impact.
Examples of DDA Services:
- Xiaoi, an editor, saves time and money by using DDA's carpooling service for her daily commute.
- Lawyer Howe not only saves money but also contributes to the environment by filling up idle seats during rush hours through DDA's carpooling service.
- College student Xiaolin avoids a long and tiring trip by using DDA's carpooling service for intercity travel, while also sharing the cost with another passenger.
- Jason, on his first business trip to Xi'an, hails a taxi quickly and easily through DDA's taxi hailing assistant.
- Mr. Wong, an experienced taxi driver, improves his efficiency and service quality through DDA's intelligent taxi roaming system and driver review system.
- DDA is transforming the mobility ecosystem in China, offering economic and convenient rides while also promoting greener commuting and reducing environmental impact.
- DDA's carpooling and taxi hailing services provide numerous benefits to riders, private car owners, taxi drivers, and regulatory authorities.
- DDA is committed to working with regulatory authorities to carry out a comprehensive digital transformation of taxi roadside hailing, creating more transit capacity and improving the overall ride experience.
Investing in a New Generation of China
Exploring the New Generation in China: A Look at Economic Growth and Innovation
- Welcome to the new generation in China
- Visuals to showcase current state and future prospects
- Longitudinal view of economic growth
- China's GDP has grown from 2-3 trillion to 12 trillion over 25 years
- Greatest revolution and growth in economic history
- Aging population and shrinking workforce in China
- India's strong youth base moving into the workforce
- China moves into a trade deficit overall
- Fueling growth all over the world, particularly in Asia
- Wealth effect driving radical change
- Rapid shift in supply chains due to trade war
- Samsung producing 47% of mobile device business in Vietnam
- Benefit for higher end manufacturing complexes in Japan, Korea, Taiwan
- Leading the world in patent filings and innovation
- Dialogue on 5G and Interpol debate
- United States behind in 5G integration and development
- Mobile payment business in China growing rapidly
- Financial inclusion a real element of growth
Venture Capital Spending in AI:
- China leading the world in AI investment
Shift in Private Sector:
- Shift from private sector technology development led by California in US to monopolistic/oligopolistic development in China
- Different philosophies in government and public/private sectors
Development of Innovation:
- Chinese regulators most pro-business in technology sector
- Little antitrust limitations allow giants like Alibaba and Tencent to deploy resources and build infrastructure
- Funding and entrepreneurship driving innovation
- Trillions of dollars in wealth generation in China
- Consumption now the main driver of economic growth
- Transformation of the economy
- China's new generation brings forth a shift in economic growth and innovation
- Consumption, technological leadership, and financial inclusion driving radical change
- Opportunities for investment and development in Asia and beyond.
🇺🇸🇨🇳 1st Chinese US IPO Since DIDI Delisting
Chinese Companies Doing IPOs Overseas Again: Mae Hwa Becomes First Company to IPO in US After Didi Fiasco
Chinese companies are once again doing IPOs overseas, including in the US. Mae Hwa has become the first company to IPO in the US after the Didi fiasco. The company is a medical device maker, making it easier for them to IPO as they are more hardware-based than software or internet-based.
Mae Hwa chose not to list via and vie structures for their IPO. This structure is often used specifically by internet companies in China to have a legal workaround to list overseas. Instead, they have a Cayman Islands company (a holding company that is holding this Hong Kong company), both of which are offshore. These companies get listed and have stakes that are trickling down to the mainland China business. This is not based on just a contract like the vie structure, which is basically using a contract to give a certainty that the offshore company has access and oversight to the onshore company.
The Holding Foreign Companies Accountable Act is still a danger for the listing. Mae Hwa included a report of an independent registered public accounting firm in their IPO filing. This accounting firm is registered with the Public Company Accounting Oversight Board in the United States and conducted audits in accordance with the standards of the PCAOB.
Future of Chinese Listings Overseas:
Mae Hwa's IPO is a prototype of how Chinese companies in the future could go public overseas and not face the issue of getting delisted and not have issues with China's regulators at home. This is just a first step, and more cases like this are needed to change the investors' mindset.
Chinese companies are once again doing IPOs overseas, and Mae Hwa has become the first company to IPO in the US after the Didi fiasco. Mae Hwa chose not to list via and vie structures for their IPO, and included a report of an independent registered public accounting firm in their IPO filing to comply with the Holding Foreign Companies Accountable Act. Mae Hwa's IPO is a prototype of how Chinese companies in the future could go public overseas and not face the issue of getting delisted and not have issues with China's regulators at home. More cases like this are needed to change the investors' mindset.
Gefahr? Neue Angriffe auf Chinas Tech-Aktien!
Chinese stocks listed in the US have been experiencing a continuous decline due to negative news related to genetic technology. The latest victim is a Chinese competitor who celebrated its debut on the US market just last Wednesday. The stock dropped by a significant 20% on Tuesday. This raises questions about the situation in China and how bad it can get. In this video, we will explore the current developments and answer some questions.
- Chinese stocks listed in the US are subject to extreme fluctuations in popularity among investors.
- The history of Chinese stocks in the US is controversial due to past fraudulent takeovers and scams.
- The complicated corporate structures of Chinese companies, which are aimed at circumventing government limitations on foreign investment, are a problem for investors.
- The possibility of expropriation by the Chinese government is a risk that investors must be aware of.
- Despite these risks, investing in Chinese stocks during times of extreme negative sentiment can be profitable.
- An alternative to investing in Chinese technology stocks is to invest in start-ups globally.
Investing in Chinese stocks listed in the US is risky due to the history of fraudulent takeovers and the complicated corporate structures of Chinese companies. However, investing during times of extreme negative sentiment can be profitable. Alternatively, investors can invest in start-ups globally. It is important to be aware of the risks and to make informed investment decisions.
Hedge Fund Tips with Tom Hayes - VideoCast - Episode 96 - August 20, 2021
Welcome to Hedge Fund Tips with Tom Hayes! I'm Tom Hayes, and this is episode 96 of our video cast, or episode 86 of our podcast, for the week ending August 20th, 2021. Happy Friday! Let's kick it off with some media spots and then get right down to business.
First, I want to thank Baker Machado and Ali Thompson over at Cheddar for having me on Tuesday morning to discuss retail earnings. We'll get into this during the article of the week, but thanks for having me on.
I also want to thank Devic Jane for including me in his article on Tuesday, where he was talking about uncertainty in the market. My quote was, The market is near all-time highs, so certainly due for a breather, but I wouldn't expect any material type of crashes or corrections. There's simply too much liquidity in the system, and there's still confidence that Delta is going to be a transient spike that will resolve itself in coming weeks. So we'll see how that works out.
And then, this is the theme that we've used in the stock market: The stock market is a device for transferring money from the impatient to the patient.
Now, let's get right down to the Ask Me Anything questions for the week.
The first one is from Ben (first name only): Hey Tom, what are your current thoughts on XLE, which is the energy ETF?
Let's start with the commodity. Obviously, crude had this huge run from last year, from a negative print in April to almost $77 a barrel back to its 2018 highs. It's backed off in the last few weeks, and that's been a function of Delta and fears about reduced travel, etc.
The one thing I look at is I think this has got a little bit more to work out here. As we had said some time ago, probably the fall would be the time to revisit, early fall. So in coming weeks, I think you'll get a better opportunity, but I want to look for the commercials. They tend to get ahead of it. If you look, when they're buyers, you want to be buyers here. They're buyers, and then you get this rally. Here, they're buyers, you get a rally. Here, they're buyers a little early, but then you get a rally. They're starting to become buyers, so I think maybe we see a high five handle. So that's the commodity.
Does that mean you can't buy any stocks here? No. The other thing you've got to keep your eye on is the US dollar, which is going to impact commodity prices. And that is still rallying now. Same type of situation when they're buyers, it's usually ahead of a big rally. So they're buyers right now. They're sellers, which is good, but they just started selling. So I don't expect necessarily an imminent peak. This could keep pushing higher. When you see the dollar get weak, that will kind of be your confirm that oil should find some flooring. But I think we've got some days and weeks to go, both on the crude weakening a little bit more and the dollar maybe strengthening before taking a breather. So I don't love it here.
That said, are there some stocks you could look at? Yeah, some of these refiners are trading back to last year levels. If you had to step in, maybe a Phillips 66 or the highest quality ENP companies like EOG is an option, FANG, Hess, and then Energy Transfer on the pipeline. So a little bit of upstream, downstream, and midstream there for you. But other than the highest quality like EOG, maybe even Hess, I wouldn't be in a rush. I think you're going to get a better chance in coming weeks, but if you were itching to put money to work, those are the only ones. XLE, I think you need a little more time. Let's see if we get a commercial stepping in a little bit more buying so we can find a bottom in the commodity itself, and then you'll have many more opportunities probably in the September range.
Okay, the second Ask Me Anything question for this week was from Tim: Good not sure if this is how to ask, okay. Thank you for taking the time to provide weekly write-ups and the podcast. Thank you for also being the Ted Lasso of the Wall Street crowd. I don't know what Ted Lasso is, but I've heard good things about it. So maybe I'll download it over the weekend and watch it. I think that's on Apple. It's refreshing how you're positive considering the pushback you've received in the past with names like Wells Fargo and some of the energy names at Lowe's and still pounding the table. Yeah, so we'll go into some of that. And now we're facing the same thing with the Chinese stocks, and we'll walk through that, which is his question. My question for you is related to Chinese ADRs as a group. The critics argue that if you purchase these stocks, number one, you don't really own shares of the companies, and number two, these companies are not held accountable for accurate accounting and reporting like their US peers. Curious if you could share your opinion on this premise and why it is such a popular theory among these groups of people. Thank you again for all you do. I never miss a Thursday morning article or Friday afternoon podcast. Oh, and then he suggests water polo for my girls, which is kind of interesting. They're great swimmers, but we'll look into that. That might be a cool idea. So thanks, Tim.
Awesome question, and thanks for listening in every week. Means a lot.
The first thing is you don't really own shares of the company. That is correct. But this is not news. The problem with all of this is opinion follows trend. That's been a theme that we've discussed many times over since we started the podcast 96 episodes ago. So do the math, that's almost two years ago now, and nothing has changed in that structure.
The VIE structure was created two decades ago to help skirt Chinese rules restricting foreign investment in a number of sensitive industries such as media and telecom. In a VIE, a Chinese company sets up an offshore company for overseas listing purposes that allows foreign investors to buy in the stock. The offshore company enters into a series of contracts with the owner of the local Chinese company, which operates the business in China, to obtain a hundred percent of the economic interest in that business. That's from Jeffrey's ex-Jefferies analyst giving an explanation.
The structure is designed for companies and industries where China will issue an operating license only to local Chinese companies, such as the internet, education, data centers, and media industry, the Jefferies analyst said. Why do Chinese companies use the VIE structure to enable their listing on overseas stock exchanges? Because direct foreign ownership in the shares of the Chinese company is restricted, and it enables foreign investors to invest in and hold shares in the company listed, incorporated overseas, and carries on and owns businesses that would otherwise be subject to foreign ownership restrictions in the relevant place of operation.
So, it's just something that the bankers thought of. Now, in effect, could the Chinese government shut it off in a minute, and you lose 100% of your interest? Yeah, that was a huge talk since this started. I think with SOHO in 2000 or NEDDIES, and then it was a big talk in 2014 when Alibaba went public. And it's always a big talk when China stocks are down every few years when the communists overreach and choke themselves. And then they realize, Oh my God, we're going to lose access to global capital markets, and then we're going to lose hundreds of thousands of jobs. And then they're like, What were we thinking? And they do it because they feel like they're losing their grip on control of the populace. And then they realize that the medicine was worse than the pain, meaning they risk losing greater control by the actions that they've taken against their own industry leaders. And then they repent and they relent.
The Rise And Fall Of Blitzscaling!
Blitzscaling has become a popular term in the tech industry, referring to the process of rapidly scaling a business in a short period of time. This article will explore the concept of blitzscaling and its application in various successful companies.
1. What is Blitzscaling?
- Blitzscaling refers to the process of rapidly scaling a business in a short period of time.
- It involves prioritizing speed over efficiency, and taking risks to achieve growth.
2. Examples of Blitzscaling:
- Google: By focusing on speed and innovation, Google was able to rapidly dominate the search engine market.
- Reid Hoffman and LinkedIn: Hoffman was an early investor in companies like PayPal and Facebook, and later founded LinkedIn, which quickly became a leading professional networking platform.
- Deliveroo: This food delivery service used blitzscaling to quickly expand to multiple countries and become a major player in the industry.
- Getir: This Turkish grocery delivery startup achieved rapid growth by prioritizing speed and convenience for customers.
- Gopuff: This on-demand convenience store delivery service quickly expanded to over 500 cities in the US through aggressive blitzscaling.
3. Risks and Challenges of Blitzscaling:
- Blitzscaling often involves taking risks and prioritizing speed over efficiency, which can lead to mistakes and oversights.
- Rapid growth can also lead to organizational and cultural challenges, as companies struggle to keep up with their own expansion.
Blitzscaling has become a popular strategy for rapidly scaling businesses in the tech industry. While it can lead to significant growth and success, it also comes with risks and challenges that must be carefully managed. As more companies seek to achieve rapid growth, it will be important to balance the benefits of blitzscaling with the need for sustainable, long-term success.