Didi Chuxing Technology Co.'s U.S. listing Didi International Inc.'s shares will likely open Friday down as much as 7.65% after taking a 10% hit Thursday after reports emerged China was considering imposing penalties.
Sources familiar with the matter said Friday China regulators were considering a forced delisting of the company.
The dip in its American depositary shares price Thursday brings Didi's month-to-date losses to about 27%. The stock dropped from a Wednesday close of $11.50 per share to $10.85 per share at Thursday's opening. The stock closed the day even lower at $10.20 per share. They are likely to open Friday at $9.44 each.
A report from Bloomberg News said regulators were planning penalties against Didi, including a fine that could be larger than the record $2.8 billion imposed on Alibaba Group earlier in the year. Sources said the penalties may also include the suspension of some of the company's operations and the possible forced withdrawal of Didi's U.S. shares.
Shortly after its U.S. debut last month, regulators suspended the company's mobile application from Chinese application stores. Last week, officials from seven different government agencies visited the company's offices as part of a comprehensive cybersecurity review.
The Cyberspace Administration of China accused Didi of being a national security threat and of violating local laws through its illegal collection of user data. Didi has denied the allegations and said that all of the data it collects is stored locally.
The CAC said the Ministry of Public Security, the Ministry of State Security, the Ministry of Natural Resources, along with tax, transport and antitrust regulators are involved in the cybersecurity review.
China has recently increased its oversight of domestic companies wishing to list abroad. The State Council recently announced that it plans to update the nation's "overseas listing system for domestic enterprises." Analysts said China likely wants to prevent locally collected user data from falling into foreign hands through mandatory disclosures related to public listings.
Sources said Didi was told by regulators to conduct a security review of its network before going public. The company reportedly ignored the warnings and proceeded with its initial public offering last month. The company was able to raise $4.4 billion from the offering.
Japan company SoftBank is Didi's largest shareholder with a 21.5% stake. It is followed by Uber which holds 12.8%. Meanwhile, China technology company Tencent owns 6.8%. Others include Alibaba and Apple - both of which have executives on Didi's board.