Didi’s shares dip below offer price, but not before ride-hailing app granted US$3 billion in pre-IPO options to executives

·4-min read

Didi Chuxing granted its senior executives and directors US$3 billion in stock options during the second quarter, just ahead of the company’s US$4.4 billion initial public offering (IPO) in New York last month.

Under the company’s equity incentive plan, an unnamed group of executives and directors received 66.7 million share options with a “nominal exercise price” per share, with the bulk of the options going to senior management on an “accelerated and vested fully” basis, the company said in an updated regulatory filing just days before its June 30 trading debut.

Didi said the awards would result in US$3.03 billion in share-based compensation expenses in its second-quarter results, as well as additional expenses of US$136.4 million in connection with the immediate vesting.

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“We believe the granting of share-based awards is of significant importance to our ability to attract and retain key personnel and employees, and we will continue to grant share-based awards to employees, directors and consultants in the future,” Didi said in its June 28 amended prospectus.

The options may rankle as investors rue their losses in a stock that has fallen nearly 11 per cent below its IPO price in the four trading days since going public.

Didi’s stock plunged by as much as 25 per cent overnight in New York before clawing back some of the losses to close 20 per cent down, as investors digested the implications of an order by China’s regulators to remove its smartphone application from app stores.

One regulatory source said Didi “forced its way” to go public in New York despite the incomplete data security assessment by the Cyberspace Administration of China (CAC).

Didi’s IPO was the biggest by a Chinese company in the US since the US$25 billion offer in 2014 by Alibaba Group Holding, the owner of South China Morning Post. It also was the megastar in a banner first half for the US capital markets, as nearly three dozen Chinese companies raised a combined US$12.5 billion on Wall Street, according to data provided by Refinitiv.

On Friday, the CAC launched a review of Didi’s data collection policies on “national security” grounds. It also ordered Didi to stop registering new users and for app stores to remove Didi from their platforms in China.

Didi-Chuxing's dominance of China's ride-hailing industry. SCMP Graphics
Didi-Chuxing's dominance of China's ride-hailing industry. SCMP Graphics

On Tuesday, China’s State Council said it would tighten the rules for IPOs, announcing sweeping changes to how companies raise money domestically and overseas. The move could potentially stymie the flow of Chinese tech companies to American capital markets and is the latest in a series of crackdowns aimed at the country’s high-flying tech sector.

The announcement triggered a sell-off in shares of Didi and other Chinese technology companies that listed in New York this year, with Didi’s shares closing down nearly 20 per cent. The sell-off wiped as much as US$16.4 billion off Didi’s value in its fourth day of trading on Tuesday.

A Didi representative did not immediately respond to a request for comment on Wednesday. The company’s listing prospectus did not divulge the names of the executives and directors who received the options.

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Still, 15 people are listed as directors and executive officers of Didi, led by founder and chairman Cheng Wei, also known as Will. Liu Qing, a former Goldman Sachs banker, is co-founder and president of the company. Liu, who also goes by Jean, is the daughter of Lenovo’s founder Liu Chuanzhi.

Stephen Zhu Jingshi, a former banker at Goldman and Morgan Stanley, is senior vice-president and chief executive officer of Didi’s international business group. Zhang Bo, a former Baidu executive, is also listed as a Didi co-founder and serves as the company’s chief technology officer. Alan Zhuo, a former Goldman and Morgan Stanley banker, is chief financial officer. Wu Rui, a former Alibaba executive, is Didi’s co-founder and vice-president of risk control and compliance. Overseeing the China ride hailing business, in which Didi has a 90 per cent dominance is the division’s chief executive Sun Shu, a former senior associate at Bloomberg New Energy Finance. The company’s board comprises directors who represent Didi’s biggest financial backers. Martin Lau, the president of Tencent Holding, the 6.4 per cent shareholder of Didi, is a director. Daniel Zhang, chairman of Alibaba, is also on the board, representing the e-commerce giant’s investment.

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