(Chinese Version)

Editor’s Note:

Didi has always been quite reluctant to share more details about itself. In the recent merger with UberChina, it only revealed the valuation after the merger and an obscure cross-ownership structure, but declined to tell more information about the merger. In previous articles, we’ve already analyzed the merger and summarized six things you need to know about the merger. In this article, we will further look into Didi’s subsidiaries, help you have a glimpse of Didi’s industry chain and understand why Didi’s valuation reach a staggering $27 billion (before the merger)?

What everyone is desperate to know is exactly what Didi declines to talk about.

As Didi officially merged with UberChina, the Chinese online ride-hailing market seems to have been unified by Didi. However, the public is becoming increasingly ignorant of the unicorn with a registered user of over 100 million.

Why will Uber Global receive 5.89% of the combined company, but 17.7% economic interest? Who are the major financing participants? What’s their stake respectively? Who really runs Didi’s app? Where did the revenue go to? It seems that few people know the answer.

Those who know the answer, however, chose not to say anything about it, as always.

Based on public data as well as several rounds of interviews, we find that Didi has established a typical variable interest entities (VIE) structure. Through a chain of offshore financing entities, offshore shell companies, Hong Kong shell companies, wholly owned foreign enterprises in China, domestic operational entities, Didi is wifully sucking more capital and establishing its own empire by constant merger and expansion, while bearing huge sum of loss at the same time.

The rise of Didi’s business empire

We can find that the business scale of these subsidiaries vary a great deal, from commercial factoring, insurance broker to financial leasing, etc. In this sense, Didi is not simply betting on its ride-hailing business for its investors, but rather on a huge empire.

While more and more Chinese began to enjoy Didi’s service and hear the typical female voice “Use Didi, and leave right now”, a huge empire is on the rise. Didi is quite ambitious, and has already achievement something. Based on Didi’s obscure announcement about the merger with UberChina and other details mentioned in the public announcement for investors, we can generally assume that Didi’s valuation has already reached $27 billion.

Didi’s high valuation is based on its huge and complicated business structure. According to our research, we find that Didi has already owned over twenty subsidiaries. With the expansion of new business in the future, the number of Didi’s subsidiaries will only continue to increase. However, Didi has always been quite discreet.

Didi’s domestic subsidiaries can be divided into three groups: Didi’s own, Kuaidi’s and other new businesses (UberChina’s new business might be integrated to this sector in the future). Didi’s subsidiaries, including Beijing XiaoJu Technology Co., Ltd. (Xiaoju Technology), Beijing Didi Infinity Technology and Development Co., Ltd (Didi Infinity), Tianjin-based Didi China Technology Co., Ltd (Didi China). In addition, Xiaoju Technology has subsidiaries such as Didi Business Service Co,m Ltd and Didi Chuxing Technology Co., Ltd.

Kuaidi’s business is also important part of Didi’s empire, including Hangzhou KuaiZhi Technology Co., Ltd, Hangzhou Kuaidi Technology Co., Ltd, Shanghai Qiyang Information Technology Co., Ltd, Shanghai Qixin Information Technology Co., Ltd, Shanghai Dahuangfeng Internet Information Technology Co., Ltd, etc.

In the past half a year, Didi also established several other new subsidiaries under Xiaoju Technology, including Shenzhen North Bank Commercial Factoring Co., Ltd, Shanghai South Bank Insurance Agent Co., Ltd, Beijing Ditu Technology Co., Ltd, Jiaxing Chengzi Investment Management Co., Ltd, Jiaxing Juzi Sharing Investment Partner Corporation.

Besides Didi’s Hong Kong-based subsidiary Carry Wealth Holdings Limited established Shanghai Zhongfu Financial Leasing Co., Ltd (Zhongfu Financial Leasing) inside Shanghai Pilot Free Trade Zone. Chen Wei, as founder and president of Didi, even directly invested and founded Jiaxing Juzi Investment Co., Ltd on his own…

From all these complicated names of Didi’s subsidiaries, we can find that Didi’s business ranges from commercial factoring, insurance broker to financial leasing, etc. In this sense, Didi’s investors aren’t betting on the success or failure of merely Didi’s online ride-hailing business, but rather the future of Didi’s entire empire.

For example, Didi just entered the automobile finance business this year. Near the end of March, Shanghai Zhongfu Financial Leasing Co., Ltd was founded, with a registered asset of 1 billion yuan and Chen Wei being the legal person.

At present, the penetration rate of automobile finance is still far lower than that in developed countries. It’s the ripe time for Didi to found the company and get prepared for this promising market. Besides, Didi’s subsidiaries focused on insurance agent and commercial factoring business revealed Didi’s ambition to expand to financial services.

In addition, Didi has been investing in other online ride-hailing services. Asides from the recent investment into Uber Global, Didi also invested in Southeast Asian online ride-hailing service GrabTaxi last August, as well as Eleme Technology last November. However, Didi didn’t reveal more details about its investment volume and stake.

A variable interest entities (VIE) structure

According to our research, Didi’s root company is Xiaoju Kuaizhi Inc, an offshore company registered at Cayman Islands. The offshore company registered another two shell companies in Cayman Islands and Virgin Islands to control the shell company in Hong Kong, while the Hong Kong shell company controls Didi’s China operation through wholly owned foreign enterprise agreement.

However, Didi has always been reticent about its stake and corporate structure. Thus, few people understand who really run the app Didi Chuxing, where does the revenue go to, let alone the reason why Uber Global’s stake and voting rights don’t match and through what kind of consideration did Didi make such arrangement.

It is even more worth noticing that although Didi officially announced its investors during several rounds of financing, we fail to find any trace of these investors in all these subsidiaries. So where did their $10 billion investment go?

Based on our research, we find that Didi accepted equity investment from internet giants such as Tencent, Alibaba, Softbank, Apple and China Life Insurance as well as bond investment from other investors as Xiaoju Kuaizhi.

So how do Didi’s offshore root Xiaoju Kuaizhi control Didi’s operation in China?

As far as we find out, the developer of Didi Chuxing is Beijing XiaoJu Technology Co., Ltd. An insider from Didi revealed that Didi Chuxing’s operation is controlled by Xiaoju Technology and its revenue also belongs to Xiaoju Technology. In addition, Xiaoju Technology is the major shareholder of many of Didi’s subsidiaries. It seems that Xiaoju Technology is the most important force in Didi’s empire.

However, things are a lot more complicated than this.

According to the information from the Industrial and Commercial Bureau, Xiaoju Technology’s shareholders are just six natural persons. Founded in July, 2012, Xiaoju Technology had a registered asset of 10 million yuan. To be more specific, Chen Wei and Wang Gang contributed to 4.8225 million RMB, respectively, Zhang Bo contributed to 155,300 RMB, Xu Tao contributed to 96,500 RMB, Wu Rui contributed to 72,300 RMB, and Chen Ting contributed to 30,900 RMB.

Besides, from the aspect of intellectual property rights, Xiaoju Technology only owned the patent for the Version 1.0 to 2.4 of Didi Dache app, which is developed in 2013 and later becomes the foundation of Didi Chuxing.

In comparison, Didi Infinity and Didi China seem to be even more potent because they own the patents and copyrights of Didi’s core technologies. To be more specific, Didi Infinity owned over 100 patents of technologies such as location identification, dynamic price adjustment, order notification, order channeling, order allocation, route planning, route prediction, demand and supply balancing, order filtering, etc. Besides, Didi Infinity owns the copyrights of Didi driving service Partner app version 2.2.0 (registered in July, 2016) as well as Didi Dache Rider app version 2.6 and 3.4.1. At the same time, Didi China owns the copyrights of Didi Chuxing Rider app (both IOS and Android) version 4.0.0. In terms of intellectual property rights, Didi China owns less patents than Didi Infinity.

As a matter of fact, Didi China only owns 10 patents, of technologies such as order management, vehicle scheduling, vehicle passenger capacity prediction, vehicle management system, smart car lock, car rental system, etc. Similar to Xiaoju Technology, the legal representative of Didi Infinity and Didi China is Chen Wei, but the shareholders of these two subsidiaries are different.

From the aspect of registered asset and shareholder background, Didi Infinity, founded in May, 2013, had a registered asset of 5.6 billion RMB, with Hong Kong Xiaoju Technology Co., Ltd being the sole proprietor. Didi China, founded in July, 2015, had a registered asset of $200 million, with Hong Kong Didi Technology Co., Ltd being the sole proprietor.

According to the file submitted to relevant departments in Hong Kong, the controlling shareholder of Hong Kong Xiaoju Technology Co., Ltd is Xiaoju Science and Technology Limited), an offshore company in Cayman Island, while Chen Wei, Wang Gang and Zhu Xiaohu, an early investor of Didi, are board members of the company.

Hong Kong Didi Technology Co., Ltd is controlled by Cheering Venture Global Limited (CVG), an offshore company registered in the Virgin Islands. CVG de facto controlled Hong Kong Dahuangfeng Information Technology Co., Ltd, the predecessor of Hong Kong Didi as early as August, 2013. In other words, Didi China’s sole shareholder is a company based on Hong Kong Dahuangfeng, while Dahuang feng was merged with Kuaidi beforehand.

In addition, the sole shareholder of Kuaidi’s subsidiary Shanghai Qixin Information Technology Co., Ltd is CVG. Shanghai Qixin has a registered asset of $245 million, and Chen Wei became the legal person in August, 2015.

“This is a typical VIE structure,” a senior analyst at a Beijing-based large private equity suggested, “Didi’s founders and management team, as well as other shareholders, might hold the share of Didi’s offshore root company Xiaoju Kuaizhi. It is likely that Xiaoju Kuaizhi will be the stock entity if Didi decides to go public overseas. Following, Xiaoju Kuaizhi founded other offshore shell companies, including Cayman Island and Virgin Island subsidiary, and these subsidiaries hold 100% share of the Hong Kong shell companies, such as Hong Kong Xiaoju Technology Co., Ltd.

Next, the Hong Kong shell companies found one or more wholly foreign-owned enterprises, which go on to sign a series of agreements with the operation entity in China. Thus, a variable interest entities structure is built, and will be subject to all the benefits.”

Based on existing information, Xiaoju Technology is the operation entity of Didi Chuxing, Didi Infinity, a wholly foreign-owned enterprise, is in charge of Xiaoju Technology based on the VIE structure. At last, all of Didi Chuxing’s interests and intellectual property rights belong to the shell company registered in Cayman Island.
Under a VIE structure, shareholders of the operation entity often acquires asset by pledging stock rights with WFOE. We confirmed this rule applies in Didi’s case from the Industry and Commerce Bureau.
At present, over 51% stock rights of Xiaoju Technology has been pledged to Didi Infinity. Likewise, the sole shareholder of kuaidi’s subsidiary Hangzhou Kuaidi Technology Co., Ltd is Kuaizhi Internation Group Hong Kong Co., Ltd, while Alibaba Venture Capital and Xiaoju Technology, the two shareholders of Hangzhou Kuaizhi, have pledged all their stock rights to Hangzhou Kuaidi.

That is to say, Hangzhou Kuaidi is also a typical WFOE, while Hangzhou Kuaizhi is a typical operation entity, and they are related by a VIE structure.

Didi’s plan to go public overseas?

Zhuhai Lihui Fund, founded by Poly Real Estate (invested by Poly Capital), acquired 1.46% stake in Didi Chuxing with less than 2.5 billion RMB. That is to say, Didi’s valuation already reached $27 billion then. At the same time, Poly Real Estate reveals that Zhuhai Lihui Fund will collect revenues by reducing or transferring the stake after Didi goes public.

Although it’s not necessary that Didi establishes such VIE structure to get prepared to go public overseas, this has already become a common practice for China firms. After all, rumor spreads a lot that Didi is going to go public overseas. So what’s Didi’s plan, exactly?

According to the asset management plans of ZQ Funds and Max Bloom Ventures, Didi plans to go public in the American stock market in 2018 with a valuation of $80 to $100 billion. However, Didi denied these files and Chen Wei has officially denied the rumor that Didi had any plan to go public.

However, we discover that Didi’s investors have already chosen reducing stocks as one of the ways to exit. In late June, Poly Real Estate revealed that Poly Capital would establish Zhuhai Lihui Fund, which would acquire 1.46% share of Didi with less than 2.5 billion RMB (around $400 million). That is to say, Didi’s valuation then reached $27 billion. At the same time, Poly Real Estate revealed that Zhuhai Lihui Fund would collect revenues by reducing or transferring the stake after Didi goes public. If so, then Didi might be actually looking for a ripe time to go public.

Besides A-share companies, three China firms have already revealed in their legal documents their investment into Didi. This May, Alibaba revealed that itself and its subsidiary Ant Financial would acquire $200 million preferred stock respectively from Xiaoju Kuaizhi. Up till now, Alibaba Group has already hold 10% stake in Xiaoju Kuaizhi by investing $445 million in total.

Last May, Sina Weibo revealed in its SEC document that it had invested $142 million in Didi. In addition, Elite Plus Development Limited (EPDL), a full asset subsidiary of eHi Car Rental, invested $25 million in Didi in 2014. As of June, 24th, 2015, EPDL still held Didi’s stake. Later on, eHi transferred the stake to Eagle Legend Global Limited (ELGL) and earned $161 million.

Besides, A-share company Lonsen revealed last year that its full-asset subsidiary SF Securities acquired $50 million convertible bond from ELGL on June, 8th, 2015. As of June, 30th, it had already acquired $32.175 million convertible bond. After the deal, TF Securities acquired 20% stake in ELGL, while ELGL indirectly acquired 7.5926 million A4-round preferred shares of Xiaoju Kuaizhi.

The obscure shareholder ranking

It is foreseeable that with the entry of market regulators, especially anti-monopoly bureau, all the obscurity about Didi’s mysterious VIE structure will be gone some day in the future.

As we have mentioned above, Didi’s shareholder structure might be even more complicated than VIE, and the deals among different shareholders are almost untraceable. In addition, Didi has always been very discreet about its shareholders’ stake and its own valuation after each round of financing. That’s why nobody can tell who’s the biggest shareholder of Didi right now, what’s Uber Global’s rank, and what’s Apple’s influence over Didi.

When we try to confirm the existence of such a VIE structure and the stake of Didi’s different investors from both Didi’s vice presidents, employees and its investors, all of them declined to respond.

An analyst at a major online ride-hailing service research institute revealed to us they had tried to fully understand Didi’s complete shareholder structure, but just couldn’t. “It’s a very sensitive and tricky issue,” the analyst said. However, he declined to explain why it was sensitive.

Comparatively speaking, the only thing that’s not sensitive is Didi’s rounds of financing.

Since Didi and Kuaidi merged on Valentine’s Day of 2015, it has already become the focus of attention for the capital market. Up till now, Didi’s offshore root company Xiaoju Kuaizhi has already completed two rounds of financing. The similarity in these two rounds of financing is that both of them last for several months.

In July, 2015, Didi completed a $2 billion round of financing led by Capital International Private Equity Fund, Ping’an Venture Capital. Previous investors such as Alibaba, Tencent, Temasek decided to follow their investment. Later on, Didi again expanded its financing scale. As of September, 2015, that round of financing had already been raised to $3 billion.

Before Didi acquired UberChina, Didi had already completed a new round of $4.5 billion financing led by Apple and China Life, etc. To be more specific, Apple invested $1 billion, the single biggest investment for Didi. China Life invested $600 million, including $300 million equity investment and 2 billion RMB long-term bond investment. Besides, China Commercial Bank will help Didi lend $2.5 billion, which means Didi has already raised over $7 billion in total in this recent round of financing.

It is worth noticing that Didi revealed its financing volume only on certain points. As a matter of fact, the starting time of each round of financing is quite obscure, and Didi’s employees also admitted that the company had always been looking for investment, and that even Didi’s own employees don’t know for sure which round of financing they were in.

After Didi acquired UberChina, some market analysts suggested that the combined company’s valuation had reached $35 billion. However, the market is even more concerned why Uber Global Didi would hold 5.89% stake of the combined company, but 17.7% of the economic interest?

As we now see it, this might have something to do with Didi’s VIE structure and the complicated shareholder structure. Besides, the separation of stake and voting rights might be a signal that Didi’s management board might be looking for ways to better control the company.

However, Didi can’t avoid facing one question: will Didi’s old and new investors sell their stocks one day in the future? “Board members of Uber Global gave Uber’s CEO Travis Kalanick a lot of pressure, pressing him to stop money-burning and start making profit. This is actually one of the most important reasons why Didi and UberChina finally merged,” Zhu Xiaohu, an early investor of Didi, explained.

If this happens to Uber, then will Didi face the same pressure in the near future? That’s why the market is very concerned about Didi and UberChina’s merger. The public don’t know if the capital investors care about riders and partners. However, it is foreseeable that with the intervention of market regulators, especially anti-monopoly investigation, the mystery over Didi, its VIE structure and complicated shareholder system, will gradually go away.

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[The article is published and edited with authorization from the author @Selected Articles, please note source and hyperlink when reproduce.]

Translated by Levin Feng (Senior Translator at PAGE TO PAGE), working for TMTpost.