Beijing City is considering having Didi Global under state control and has proposed that government companies invest in the Chinese travel company. Bloomberg News reported.
The central goal of the city government’s proposal is to regain control of one of its largest corporations, and in particular the data it holds, that of Friday. Bloomberg said the report.
Chinese authorities have intensified their regulation of technology companies over the past year to improve market competition, data processing and employee processing.
According to the preliminary proposal, some Beijing-based companies, including the Shouqi Group, which is part of the state-owned Beijing Tourism Group, would acquire a stake in Didi, Bloomberg reported, citing unidentified people familiar with the matter.
Other scenarios being considered include that the consortium has a nominal stake, accompanied by a so-called “golden action” with veto power and a seat on the council, he added.
Didi, Beijing City Government, Beijing Tourism Group and Shouqi Group did not immediately respond to requests for comment.
Didi shares rose 1.7% to $ 8.96 in New York during early afternoon trading. Some investors welcomed the news, arguing that it could remove the excess of regulatory uncertainty over Didi’s shares.
“A better outcome than making a mistake like private education,” said Dave Wang, Nuvest Capital’s portfolio strategist in Singapore.
In July, China banned for-profit tutoring in basic school subjects, which intensified regulatory oversight of a $ 120 billion industry that investors have been betting on for billions of dollars in recent years.
Some investors, however, raised questions about how Didi could achieve this move while maintaining a U.S.-listed company, respecting the rules of the U.S. Securities and Exchange Commission (SEC) and the New York Stock Exchange (NYSE).
The SEC declined to comment. NYSE has not responded to any comments.
“We were expecting some action but not at this level of magnitude. The big question is what will happen to Didi’s investors?” Said Justin Tang, head of Asian research at investment adviser United First Partners in Singapore.
Legal experts said Beijing had never taken control of a U.S.-listed company. One option would be to take control of an entity in China that owns Didi’s operations, but not Didi’s holding company, based in the Cayman Islands.
It is unclear whether this move would require the approval of Didi’s shareholders. If it did, its founders could go ahead because they own double-class shares with 51.9% vote control.
“It would depend on which jurisdiction this entity controls. I don’t know another situation where a government would take a stake in a U.S.-listed company,” said William Rosenstadt, a capital markets and securities lawyer for Ortoli Rosenstadt LLP.
The “golden share” deal considered by Didi would be similar to an investment the Chinese government has made in the key Chinese entity of TikTok owner ByteDance, Bloomberg said. Unlike Didi, however, ByteDance does not appear on the public list.
The Shouqi Group owns the Shouqi Yueche Horse and Cheerleading Service Bloomberg he said he will play a role in helping operate his biggest rival according to the proposal.
Didi is facing a cybersecurity investigation by Chinese authorities after his first public offering in New York in June.
Reuters reported in August, citing people familiar with the matter, that Didi is in talks with state information security firm Westone to manage its data management and control activities.
Didi is controlled by the management team of co-founder Will Cheng and President Jean Liu. SoftBank Group Corp., Uber Technologies Inc. and Alibaba are among other investors in the company.