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Luckin Stock Faces Wipeout in Rush to Sell Before Delisting

By Bloomberg / May 20, 2020 09:56 PM / Business & Tech

Photo: Bloomberg

Photo: Bloomberg

Luckin Coffee Inc.’s battered stock faces 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, fell another 33% premarket 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.

Shares fell 33% to $2.94 each at 7:06 a.m. in New York. The stock had reached as high as $51.38 at its peak in January.

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. That was poised to dwindle to about $300 million based on premarket trading Wednesday.

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.

The anticipated selloff in Luckin shares on Wednesday 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.”

Related: Luckin Explained: How Did Scandal-Plagued Coffee Highflyer Get Into Such Hot Water?

 

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