By Scott Murdoch, Julie Zhu and Yilei Sun
(Reuters) -An initial public offer (IPO) by China’s Didi Global Inc in New York to raise up to $4 billion has been fully covered on the first day of its bookbuild, even as some investors fear tougher rules could hit growth, sources with direct knowledge said.
The offering will be the biggest U.S. share sale by a Chinese company since Alibaba (NYSE:BABA) raised $25 billion in 2014 and is likely to be the biggest U.S. IPO this year.
The ride-hailing giant did not respond to a request for comment on its bookbuilding exercise, set to run until Tuesday, when pricing will be set after the close of the U.S. market, according to a term sheet seen by Reuters.
“Many investors still doubt if Didi can maintain a high growth rate for its core ride-hailing business in China,” said a prospective investor at one Hong Kong-based hedge fund who asked not to be identified as he was not allowed to speak to media.
“Its market share is already very high in big cities, which means there is limited room for its future growth,” the source added.
“It’s also challenging for the company to expand in lower-tier cities due to increasing competition from rivals, not to mention the potential impact of a regulatory crackdown.”
Didi’s targeted valuation is less than an initially expected range of $80 billion to $100 billion because potential investors expressed concern over its growth prospects and the chance of tighter regulation of Chinese tech firms, the sources said.
The valuation target and raising size were set after initial meetings with investors over the past fortnight.
Didi plans to start trading on Wednesday after a short roadshow for investors for the keenly awaited IPO.
Didi set a price range of between $13 and $14 per American Depositary Share (ADS), a regulatory filing showed on Thursday, and said it would offer 288 million such shares in the IPO. At the top of the range, the deal will raise $4.03 billion.
That suggests a valuation ranging from $62.4 billion to $67.2 billion.
An overallotment option could see the company sell an extra 43.2 million shares to raise up to an extra $605 million.
Deal terms suggest a conservative approach for Didi that sources said had earlier eyed the higher valuation range.
The company’s valuation exceeded $60 billion a year after its 2017 fundraising, sources have said.
Investor presentations, led by Didi’s vice president and head of capital markets, David Xu, will run until Tuesday. The roadshow for a U.S. listing of this size is shorter than the usual 10 days of most.
Morgan Stanley (NYSE:MS) Investment Management has indicated interest in subscribing for up to $750 million worth of stock in the IPO and Singapore’s Temasek for $500 million, Didi’s updated prospectus shows.
Last week, Reuters reported that China’s market regulator had begun an antitrust investigation of Didi, citing sources with knowledge of the matter.
The State Administration for Market Regulation (SAMR) is investigating whether Didi used competitive practices that unfairly squeezed out smaller rivals.
It is also examining whether the pricing mechanism used by Didi’s core ride-hailing business is sufficiently transparent.