Chinese stocks on Wall Street were plunging Thursday after Didi Chuxing, a popular ride-hailing company that is valued at $48 billion, withdrew its U.S. IPO registration after realizing it had few buyers.
The pulled application could be a bad omen for companies trying to go public here. If it seems like there are few buyers of Chinese stocks in the United States, you are right.
Take, for example, REX American Resources Corp. It is a $485 million company with about $245 million in annual revenue and 12 million shares. In its first big move as a public company, REX American was supposed to start trading on Wednesday, the same day that Didi pulled its registration.
Even though the company had filed for an IPO in March, it delayed the offering a few times in order to focus on better understanding its business model. Now, because of the pullout of Didi, REX has to explain why it’s not taking off.
“The ultimate affect on REX is negligible,” said Brian Sponheimer, a U.S. IPO expert and partner at law firm Paul Hastings, but he added that some in the market could conclude that an offering based on a business model that only slightly resembles the one of the well-known technology companies is not a promising business in the U.S.
To be sure, REX’s operations — which have an affiliate based in oil-rich Texas — are somewhat different from that of Facebook or Google. REX has no real manufacturing or research and development operations. But if it had priced the IPO at $10 per share, it would have raised roughly $90 million.
Instead, shares of REX American tanked to just above $4, closing down more than 30 percent. (How the price would have fared had it gone forward is unclear.)
And the Twitterverse was abuzz.
This fact is what’s wrong with US-China economic/regulatory coziness https://t.co/DrH7hvijxJ via @JayLefkowitz — Wendell Potter (@wendellpotter) June 14, 2018
OPINION: Didi’s Headache Is China’s Growth & Trade Woes | Jim Lobe | CNBC https://t.co/eraJOERg9k via @RichardJHu — Tin Cup (@pineapple512) June 14, 2018
In a statement, Didi said it wasn’t abandoning its U.S. IPO outright — a new company will try again after the summer, it said — but the timing of the filing withdrawal suggests that a market offering is unlikely.
Didi’s decision may also leave investors wary about funding new-economy companies here.
As you may recall, the Nasdaq fell more than 4 percent last week when an initial offering from another Chinese company, Nio, tanked after the company disclosed that its founders planned to take the company private, using the proceeds to be paid out to the investors in Nio’s IPO.
Nio had planned to raise as much as $1.3 billion in its debut.