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Luckin Stock Faces Wipeout in Rush to Sell Before Delisting

Bloomberg News

(Bloomberg) -- Luckin Coffee Inc.’s battered stock saw a renewed wave of selling on Wednesday, after Nasdaq Inc. 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 had been suspended since tumbling more than 80% in early April, slumped to a record low Wednesday as trading resumed 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 exit 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 $310 million in sales. Banks including Credit Suisse Group AG, Morgan Stanley and Goldman Sachs Group Inc. 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 Co. in Shenzhen.

The shares fell 36% to $2.82 Wednesday in New York trading, the lowest for the company since it went public a year ago. The stock had risen as high as $51.38 at its peak in January.

Trumping ‘Looking’

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 accessible by firms from a growing geopolitical rival.

President Donald Trump said last week he’s “looking at” Chinese companies that don’t follow U.S. 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.

Nasdaq Set to Tighten Listing Rules, Impacting Chinese IPOs

Luckin Chairman Lu Zhengyao said in a statement that he’s “deeply disappointed” Nasdaq is moving to delist the shares before his 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.

‘Never Lied’

“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 $1.1 billion based on its closing level April 6. Wednesday’s slump trimmed the company’s value to about $700 million, according to data compiled by Bloomberg.

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.

Read more: Luckin Coffee Still Expanding Full Steam Despite Sales Scandal

In a 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.”

Scandal’s Wake

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% in Hong Kong on Wednesday. Its dollar bonds were little changed, as were Luckin’s convertible notes, according to Bloomberg-compiled prices.

The selloff in Luckin shares may also spread to other U.S.-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 U.S. 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.”

(Updates with closing share price in fifth paragraph)

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