NASDAQ moves to de-list China's Luckin Coffee

The exchange decided on this course of action in response to public interest concerns raised by Luckin's admission that a large portion of its 2019 sales had been fabricated and the company's past failures to disclose sufficient information on its operations. Luckin plans to call for a hearing so it can challenge the decision, according to a filing.

The company is expected to resume trading on May 20, having been suspended on April 7. Luckin's stock plunged 75% on April 2 in response to news of the fabrication, closing at $6.40. It had already fallen from $50 in mid-January to $27.19 at the end of March as the coronavirus outbreak caused havoc in public equities markets. The last trading price was $4.39.

Last week, Luckin announced the removal of CEO Jenny Qian and COO Jian Liu. Liu was previously identified as one of several executives suspected of misconduct. This was linked to the falsification of transactions from the final three quarters of 2019, amounting to RMB2.2 billion ($310 million). Certain costs and expenses were also substantially inflated.

The company reported revenue of RMB2.93 billion for the nine months ended September 2019 – up from RMB375 million a year earlier – and it had previously projected fourth-quarter sales of RMB2.1-2.2 billion.

Luckin's business model has always been controversial. Founded in 2018, it became China's second-largest coffee shop chain on the back of an aggressive store expansion program. As of last September, there were 3,680 outlets. This expansion incurred substantial costs, with operating expenses reaching RMB4.74 billion in the first nine months of 2019, up from RMB1.33 billion a year earlier. Over the two periods, net losses rose from RMB950 million to RMB1.76 billion.

Advocates described Luckin as a standout example of new retail. Unit costs would be driven down not only through economies of scale, but also by leveraging technology to deliver supply chain efficiencies and better consumer insights. The former would reduce inventory costs and the latter would lower customer acquisition costs. Moreover, the whole transaction process is automated because ordering and payment are done via app and outlets are mostly delivery hubs.

However, in January, US short-seller Muddy Waters circulated an anonymous report that drew on WeChat conversations and hours of video footage recorded at branches to allege Luckin was inflating sales. Luckin firmly labeled the claims as false, misleading, and irrelevant.

The company raised more than $500 million in private funding ahead of its IPO in May 2019, with Centurium Capital, Joy Capital, GIC Private, Legend Capital, China International Capital Corporation (CICC) and BlackRock all participating. Centurium currently owns 11.43% of Luckin, having generated $231.8 million through a partial exit in January. Joy and GIC each hold less than 1%.

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• Topics
• Greater China
• Regulation
• Consumer
• Technology
• China
• NASDAQ
• Centurium Capital
• Joy Capital
• GIC Private
• BlackRock
• Legend Capital