Kyle Bass, the hedge fund manager and outspoken critic of Beijing, says the timing of China’s crackdown on ride-hailing app Didi is no coincidence.
“The Chinese believe deeply in symbolism and numerology,” Bass told CNN Business on Wednesday. “Banning an IPO that just went public in the US – with US investor money – on our Independence Day was basically a big F-U to the United States.”
Didi’s shares crashed by 20% on Tuesday after Chinese regulators announced on July 4th they were banning the platform from app stores in the country because it poses cybersecurity risks and broke privacy laws.
Didi, one of the largest ride-hailing companies in the world, raised $4.4 billion by listing its shares on the New York Stock Exchange on June 30. It was the biggest US IPO by a Chinese company since 2014. Just two days later, China launched a probe into Didi that escalated further last weekend.
“They knew this was going public. They knew they were going to ban it from app stores and shut it down,” said Bass, the founder and chief investment officer of Hayman Capital. “Nothing happens without the behest and pleasure of [Chinese President] Xi Jinping.”
The fact that the crackdown by China wasn’t announced until after Didi went public cost some American investors dearly. Didi is extremely reliant on its home market for revenue. The company’s market value fell to $57 billion on Wednesday, down from nearly $70 billion the day it went public.
However, unnamed sources told The Wall Street Journal that China’s cybersecurity watchdog suggested to Didi that it delay its IPO.
In a statement on Sunday, Didi said it will “strive to rectify any problems, improve its risk prevention awareness and technological capabilities, protect users’ privacy and data security, and continue to provide secure and convenient services to its users.”
‘Send the money back to investors’
Bass, who successfully bet on the collapse of the US housing market prior to the Great Recession, has become a vocal opponent of the Chinese Communist Party. In the interview, he called on US financial regulators to do more to protect American investors from the whims of Chinese regulators.
Specifically, Bass urged the Securities and Exchange Commission to allow investors who bought Didi shares to rescind the transaction and recover their money. He pointed to federal securities laws that allow for rescission if buyers of shares did not know about a misstatement or omission at the time of the purchase. It’s not clear if that would apply in this case.
“Send the money back to investors,” Bass said. “It was clearly sold under false pretenses, therefore fraudulently.”
Bass criticized the SEC more broadly for allowing Chinese companies to list shares on US exchanges even though those firms don’t need to submit to US auditing standards. “It’s crazy,” he said. “The SEC’s job is to protect investors.
The SEC did not respond to requests for comment.
Chinese stocks under pressure
China’s crackdown goes beyond Didi. Chinese authorities announced Monday it was launching probes into other US-listed tech companies, including truck-hailing platforms Yunmanman and Huochebang as well as job listing site Boss Zhipin. All three recently went public in the United States. As a result of the investigations, new users can’t register for these apps.
The Invesco Golden Dragon China ETF (PGJ), which tracks the performance of US-listed Chinese stocks, has lost more than one-third of its value since February.
The botched IPO of Didi draws further attention to the risks facing US investors.
That’s despite recent restrictions enacted by Washington, including a law that President Donald Trump signed last year that bans Americans from investing in firms that the US government suspects are either owned or controlled by the Chinese military.
Trump also signed a law that would kick Chinese companies off US exchanges if they fail to comply with US auditing standards for three years in a row.
“That basically says Chinese companies can rape and pillage American investors for the next three years. And we just saw the net result,” Bass said.
The FOMO factor
Republican Senator Marco Rubio told the Financial Times that it was “reckless and irresponsible” for Didi to be allowed to sell shares.
“Even if the stock rebounds, American investors still have no insight into the company’s financial strength because the Chinese Communist party block US regulators from reviewing the books,” Rubio told the UK newspaper. “That puts the investments of American retirees at risk and funnels desperately needed US dollars into Beijing.”
Bass slammed brokers, fund managers and institutional investors for buying US-listed Chinese IPOs despite concerns about the sanctity of their financial records.
“You can’t possibly know if the numbers they are giving you are true. If you lose money, you should lose your job,” said Bass.
Yet many investors don’t want to miss out on the potential of monster gains if those stocks skyrocket, also known as FOMO, or fear of missing out.
“FOMO will get the most gullible people,” Bass said. “And maybe they should lose their money. If you want to light your money on fire, then go do it.”