NEW YORK (BLOOMBERG) - Luckin Coffee Inc's battered stock faces a renewed wave of selling on Wednesday (May 20), after Nasdaq said it planned to delist the onetime market darling that shocked investors with revelations of accounting fraud last month.
The Chinese coffee chain's shares, which have been suspended since tumbling more than 80 per cent in early April, will resume trading at 7am in New York. Luckin announced Nasdaq's intention to delist the company in a statement on Tuesday, saying shares will remain on the exchange pending the outcome of an appeal hearing.
The prospect of delisting is likely to trigger a rush for the exits by 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 fabricated about US$310 million (S$439 million) in sales. Banks including Credit Suisse Group, Morgan Stanley and Goldman Sachs Group are among those with money at stake, after the firms seized control of shares that Luckin's chairman had pledged as collateral for loans.
"I can't see what else investors would do other than dump the stock," said Hou Anyang, a fund manager at Frontsea Asset Management in Shenzhen.
Luckin's dramatic fall from grace has made the company a poster child for concerns about Chinese corporate governance, fueling a debate in Washington over the extent to which American money and capital markets should be intertwined with a growing geopolitical rival.
US President Donald Trump said last week he's "looking at" Chinese companies that don't follow US accounting rules, while his administration moved to stop a federal retirement savings fund from investing in the Asian nation's stocks. Nasdaq is planning new rules that would make initial public offerings more difficult for some Chinese companies.
Luckin chairman Lu Zhengyao said in a statement that he's "deeply disappointed" Nasdaq is moving to delist before the company releases final results of an internal probe into its accounting.
"Luckin has reacted actively according to the initial results of the investigation, including terminating some relevant management and restructuring the board," Lu said.
"My personal style may have been too aggressive and led the companies to run too fast, which has triggered many problems," Lu continued. "But I never lied to investors with the idea of 'selling concepts.' I'm working hard to make the company bigger and better to create value for society."
A Luckin representative declined to comment on the stock price. The company had a market value of about US$1.1 billion based on its closing level on April 6.
Founded in June 2017, Luckin's IPO had attracted several prominent investors, including asset manager Blackrock, Singapore sovereign wealth fund GIC and China International Capital Corp.
While Luckin's stores are still operating and the company is opening new outlets, its offices in China were raided by authorities last month as part of a multi-agency investigation into its finances. Luckin fired its chief executive officer and other senior leaders last week.
In its letter to Luckin on the delisting plan, Nasdaq cited "public interest concerns as raised by the fabricated transactions disclosed by the Company" and "past failure to publicly disclose material information."
Car Inc, the auto-rental company founded by Lu whose stock has slumped in the wake of the Luckin scandal, dropped as much as 3.8 per cent in Hong Kong on Wednesday. Its dollar bonds were little changed, as were Luckin's convertible notes, according to Bloomberg-compiled prices.
The anticipated selloff in Luckin shares on Wednesday may also spread to other US-listed Chinese companies, though some of those losses could create buying opportunities, said Sun Jianbo, president of Beijing-based China Vision Capital.
"As a Chinese firm which will cease to list on the US market, Luckin will be virtually worthless to American investors," Sun said. "It'd also be a sentiment shock to other Chinese ADRs, but may create bottom-fishing opportunities for some investors."
