Scandal-Hit Starbucks Rival Luckin Said To Be Scheming A US Relisting

Luckin Coffee Inc LKNCY is planning to list its shares once again in the United States nearly two years after the Chinese company was rocked by a $300 million accounting scandal.

What Happened: The competitor to Starbucks Corporation SBUX in China is exploring yet another listing on the Nasdaq nearly two years after the company’s shares were delisted following a $300 million accounting fraud, the Financial Times reported citing people familiar with the matter.

The coffee chain has held meetings with both investors and advisers ahead of its relisting and discussed raising capital, according to the Financial Times sources.

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Why It Matters: Luckin continues to file earnings reports in the U.S. as it still trades there, which could translate into fewer regulatory hurdles, according to FT.

The company’s third-quarter earnings grew 106% year on year to RMB 2,350.2 million ($370 million). Luckin reportedly has 500 more stores than Starbucks in China, with a total of 5,671 stores — a vast majority being on the mainland.

“Revenues rising sharply is something that those of us who have been following Luckin have seen before,” said Michael Norris, an analyst with Agency China, a Shanghai-based consultancy, according to the Financial Times.

“They are doing financially and operationally very well . . . none of the allegations related to the quality of their coffee,” a person close to the company said, as per FT.

Luckin agreed to pay a $180 million penalty to settle charges of accounting fraud with the U.S. Securities and Exchange Commission in December 2020.

The SEC had alleged that the company inflated its retail sales by $300 million between April 2019 and January 2020 by creating fake transactions using related parties.

After giving up its Nasdaq listing, former Luckin Chair Charles Zhengyao Lu and the company’s board of directors tried to oust each other.

Notably, no comment was forthcoming from Luckin to the Financial Times on its relisting story. 

China's Phoenix Network Technology, which earlier reported that Luckin was considering a return to the Nasdaq, was issued a denial by the coffee company. Luckin responded by saying the Phoenix report was untrue.

Price Action: Luckin OTC shares soared 16.16% to $11.50 on Wednesday.

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Photo: Courtesy of N509FZ via Wikimedia