It’s tech, it’s Chinese and it looks a bit like Uber, so it must be hugely valuable. That, we must assume, was the analysis of those US investors who piled into Didi last week as the ride-sharing app listed in New York at the mighty valuation of $80bn (£60bn). If anybody read the warning in the IPO prospectus about regulatory risks in China, they probably dismissed it as boilerplate stuff.
They’re wiser now. The scary-sounding Cyberspace Administration of China has clobbered Didi by ordering that its app be removed from domestic online stores, a move the company said with brilliant understatement “may have an adverse impact” on its revenues in China, its biggest market by far. Cue a 25% plunge in the share price at one point on Tuesday, only the fourth day of trading, a farcical state of affairs.
The short-term question is whether Didi’s management and its Wall Street advisers had an inkling that a clampdown was coming amid China’s well-publicised paranoia about consumer data falling into the hands of US officialdom. Reports on Tuesday said the Chinese watchdog had urged Didi to delay its listing without actually ordering it to do so. The company’s new investors may want a full account.
The long-term moral of the tale, though, is easier to read: Beijing is seriously annoyed that many of its largest tech firms have been running off to New York to raise funds, rather than sticking to stock markets in Shanghai or Hong Kong. Two other companies captured by the latest cyber investigation floated in New York in the last month: Full Truck Alliance, a freight app, and Kanzhun, a recruitment firm. The timing of the clampdown looked designed to grab maximum attention.
Just to be safe, Beijing made its message explicit later on Tuesday by announcing tighter rules on the “information security responsibilities” of Chinese companies listing overseas. That would seem to cover most of the data-heavy businesses that have caught the eye of US investors.
Thirty-four have listed in the US this year, an astonishing number. Beijing seems to have decided that “data security”, threatened as it views it by US audit rules, trumps its previous desire to have its tech firms regarded as global champions. If so, the Didi affair marks a major change in the politics of investment.
Sainsbury’s is safe from a takeover … for now
Simon Roberts, Sainsbury’s chief executive, batted away takeover talk with the boring but correct reply that, if the board had anything to announce, it would have done so. A more mischievous boss could have said he’s offended to be so far down the rankings in private equity’s supermarket sweep.
Asda has fallen to TDR Capital and the Issa petrol station brothers, and Morrisons’ days of independence look numbered. Why wasn’t Sainsbury’s first in the frame? It’s a bigger business than Morrison’s but its market capitalisation is £6.2bn, almost exactly the same value as the latest offer for the Bradford-based rival.
Sainsbury’s larger debt (mostly leasehold obligations) isn’t an adequate answer because the group’s freehold properties, though a small percentage of the total versus Morrisons’, are also worth more a lot more.
The main factor may be Sainsbury’s ownership of Argos and a bank, which makes it a messier proposition for private equity buyers who prefer clean lines. On that score, though, Roberts’ strategy to “put food back at the heart of Sainsbury’s” (which incidentally sounds an implicit criticism of his predecessor) should simplify matters. The approach means, in essence, that the peripheral bits are meant to generate cash to invest in the food business, rather than consume it.
The best defence against a takeover bid is a high share price. Sainsbury’s is up from 230p to 280p since the start of the year and Tuesday’s tweak in full-year profit expectations from £620m to £660m will help the mood. Keep going. Given private equity’s current appetites, one can’t say Sainsbury’s is in safe territory yet.
Sunak’s debt predicament in a nutshell
“It used to be the case that governments could inflate their debt away. It is less and less the case as we go into the future,” said Richard Hughes, chairman of the Office for Budget Responsibility, on Tuesday, as the body unveiled its annual report on budget risks.
There, in a nutshell, is a key insight into the UK’s finances. Quantitative easing and the bill for the pandemic have shortened the maturity of the UK’s debt profile. The fiscal impact of a one percentage point increase in interest rates is six times greater than it was in 2007, estimates the OBR. It is the chancellor’s biggest straight-jacket and one he barely mentions. He should.