Luckin Stock risks breaking the bank to sell before retiring

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(Bloomberg) – Beaten shares of Luckin Coffee Inc. had a new wave of sales on Wednesday after Nasdaq Inc. said it plans to remove the darling list from the market which shocked investors with revelations of fraud accountant last month.

Shares in the Chinese coffee chain, suspended since falling more than 80% in early April, fell to historic lows on Wednesday as trade resumed in New York. Luckin announced Nasdaq’s intention to delist the company in a statement on Tuesday, saying the shares would remain on the stock market pending the outcome of an appeal hearing.

The prospect of a write-off is likely to spark a exit rush for Luckin’s remaining shareholders, adding to a long list of challenges for the company as it tries to recover from its disclosure that senior executives have realized approximately $ 310 million in sales. Banks like Credit Suisse Group AG, Morgan Stanley and Goldman Sachs Group Inc. are among those who have money at stake after companies took control of the actions that the president of Luckin had promised in loan guarantees .

“I don’t see what investors would do other than empty the stock,” said Hou Anyang, fund manager at Frontsea Asset Management Co. in Shenzhen.

Shares fell 36% to $ 2.82 on Wednesday in New York, the company’s lowest since its IPO a year ago. The title had reached $ 51.38 at its peak in January.

Go beyond “watching”

Luckin’s dramatic fall made the company a poster child for concerns over Chinese corporate governance, fueling a debate in Washington over the extent to which US money and financial markets should be accessible to businesses by a growing geopolitical rival.

President Donald Trump said last week that he was “considering” Chinese companies that do not follow US accounting rules, while his administration decided to prevent a federal retirement savings fund from investing in stocks from the Asian country. The Nasdaq plans new rules that would make initial public offerings more difficult for some Chinese companies.

Nasdaq to tighten listing rules, impacting Chinese IPOs

Luckin’s president Lu Zhengyao said in a statement that he was “deeply disappointed” that the Nasdaq was about to write off the shares before his company released the final results of an internal investigation into its books.

“Luckin has reacted actively to the first results of the investigation, in particular by putting an end to relevant management and by restructuring the board of directors,” said Lu.

“Never Lied”

“My personal style may have been too aggressive and caused companies to run too fast, which triggered many problems,” continued Lu. “But I never lied to investors about the idea of” sell concepts. ” I’m working hard to expand the business and create value for society. “

A Luckin representative declined to comment on the action. The company had a market value of approximately $ 1.1 billion based on its closing level on April 6. Wednesday’s slump reduced the value of the company to around $ 700 million, according to data compiled by Bloomberg.

With Luckin’s stores still operating and the company opening new outlets, its offices in China were raided by authorities last month as part of a multi-agency financial investigation. Luckin fired its president and CEO and other senior executives last week.

Read more: Luckin coffee continues to grow despite sales scandal

In a letter to Luckin about the radiation plan, the Nasdaq cited “public interest concerns raised by the fabricated transactions disclosed by the company” and “the prior failure to publicly disclose material information”.

Scandal’s wake

Car Inc., the car rental company founded by Lu, whose stock collapsed following the Luckin scandal, fell 3.8% in Hong Kong on Wednesday. His dollar bonds have changed little, as have Luckin’s convertible notes, according to prices compiled by Bloomberg.

The sale of Luckin shares could also spread to other Chinese companies listed in the United States, although some of these losses may create buying opportunities, said Sun Jianbo, president of Beijing Vision Capital, based in Beijing .

“As a Chinese company that will cease to be in the US market, Luckin will be practically worthless to American investors,” said Sun. “It would also be a sentiment shock for other Chinese ADRs, but it could create bottom fishing opportunities for some investors. “

(Updates with the closing share price in the fifth paragraph)

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