Didi’s upcoming IPO may drive its founders’ fortunes further into the billions

The company filed last week for an initial public offering under the business name Xiaoju Kuaizhi Inc., revealing that the Chinese entrepreneur has a 7% stake. With Didi reportedly trading at a valuation of about $95 billion in the secondary market in recent months, that shareholding could be worth as much as $6.7 billion, according to the Bloomberg Billionaires Index.

Jean Liu, a co-founder and Didi’s president, owns a 1.7% slice that could be worth $1.6 billion. Eight other executives collectively hold about 1.8% of the company, which translates to a total $1.7 billion hoard.

It’s the latest example of ride-hailing riches being minted in Asia as companies backed by Masayoshi Son’s SoftBank Group Corp. prepare to go public. Singapore-based Grab Holdings Inc. is poised to merge with a special purpose acquisition company, while Indonesia’s GoTo Group is pursuing a listing by the end of the year.

“Ride mobility is one of the most significant growth industries in Asia,” said Gary Dugan, chief executive officer of the Global CIO Office in Singapore. The scale of the Didi IPO “shows just how much economic value continues to be created.”

A representative for Didi didn’t respond to a request for comment.

Didi is counting on a remarkable post-pandemic recovery that accelerated after China’s became the world’s first major economy to emerge from COVID-19. People returning to work and a resumption of travel helped revenue more than double to 42.2 billion yuan ($6.6 billion) in the first quarter, reversing a decline in 2020. It’s one of the largest Chinese Internet giants to tap public markets in recent years, part of a second wave of tech stars aspiring to join Alibaba Group Holding Ltd. and Tencent Holdings Ltd. in the upper echelons of the country’s industry.

With more than 493 million annual active users mostly in China, the startup earlier raised funding at a $62 billion value and has been considering seeking a valuation of as much as $70 billion to $100 billion in the IPO, Bloomberg News has reported.

But wary investors remember the roller-coaster ride of past years and point to Beijing’s tightening grip on Internet giants including Tencent—a major Didi backer—as a potential red flag. In its risk factors, Didi warned about the possibility of a regulatory clampdown.

“Didi doesn’t have a solid foundation to support a valuation of $100 billion,” said Shen Meng, a director at Beijing-based boutique investment bank Chanson & Co. “The company’s growth has plateaued, while expanding overseas is no easy matter.”

The startup founded by ex-Alibaba staffer Cheng came out on top in 2016 when it drove Uber Technologies Inc. out of China, after which it briefly dominated ride-hailing across the country. But its fortunes took a turn for the worse in 2018 when a pair of murders committed by drivers spurred an investigation into its ability to police a vast network used by hundreds of millions. The subsequent crackdown chilled investors and Didi’s shares traded at a 40% discount to its last valuation just before the pandemic erupted and hurt its business.

Although Didi has expanded beyond ride-hailing in recent months to include new offerings such as on-demand trucking and online commerce, “those services won’t be the same,” Shen said.

The regulatory risks facing Didi loom large. The company was among 34 Chinese tech firms ordered by regulators in April to rectify their anti-competitive practices, and Chinese antitrust watchdogs have also begun reviewing previous investments conducted by Internet companies which—by and large—have escaped government oversight until now.

Still, one thing Didi has in its favor is scarcity value. Investors have warmed to Uber since its initial flop in public markets, with U.S. ride-hailing giant’s shares more than tripling from a low in March 2020 through the end of last week. There’s no other listed ride-hailing giant of similar scale, but at least one may compete with Didi for investor attention in coming months.

Grab, the ride-hailing and food-delivery giant led by Anthony Tan, plans to list in the U.S. through a merger with Altimeter Growth Corp. in the fourth quarter that may value the combined entity at about $40 billion. Co-founder and CEO Tan will see his fortune surge to $829 million based on the stock that he will own, according to the Bloomberg Billionaires Index.

Shares held by co-founder Hooi Ling Tan and President Ming Maa will be worth $256 million and $144 million, respectively.

Then there’s GoTo, created from the merger of ride-hailing and payments startup Gojek and e-commerce company PT Tokopedia in Indonesia. It also intends to list by the end of the year. The two companies had a combined value of about $18 billion during their merger talks. That means Gojek co-founder Nadiem Makarim is sitting on a fortune of about $327 million, according to calculations by Bloomberg based on the company’s regulatory filing.

Tokopedia co-founders William Tanuwijaya and Leontinus Alpha Edison have a combined wealth of about $510 million, the calculations showed. GoTo declined to comment.

One common element for all the firms is the backing of SoftBank. The Japanese company owns 21.5% of Didi, 21.7% of and about 15% of GoTo. Didi is by far the largest of the Asian trio, and the single biggest investment in SoftBank’s portfolio.

In a founders’ letter in the filing, the 38-year-old Cheng, who started Didi in 2012, talked about Didi’s potential not just in its core mobility business, but in newer fields.

The company is looking for capital to expand into online commerce and bankroll a major foray into Europe, where it must compete with Uber. Didi, which remains the dominant player in China despite competition from the likes of Dida Inc., is also looking to leverage that lead to expand into adjacent arenas from autonomous driving to electric vehicles.

“We aspire to become a truly global technology company,” Cheng and Liu wrote. “We have also been launching businesses that fit well with our technological and operational experience and advantage at building marketplaces that improve the lives of urban inhabitants. These include intra-city freight, community group buying and food delivery. These businesses, while still nascent, allow us to create a platform that better addresses people’s daily essential needs.”