Enforcement on up to 76,350,094 ADSs of Luckin Coffee Inc

Daniel Fowler
April 7, 2020

Often referred to as the "Starbucks of China", Luckin Coffee said Friday that an internal investigation had proven that several of its executives had been inflating sales numbers between the second and fourth quarters of 2019.

The default comes after Luckin, a major rival to Starbucks in China, said last week that much of its 2019 sales had been fabricated, sending its shares to plunge up to 82% in US trade and trigger an investigation by the Chinese securities regulator.

Morgan Stanley, Credit Suisse and Barclays declined to comment.

Lu Zhengyao, Luckin Coffee's chairman, apologized for the scandal on Sunday via his WeChat account, writing that he was ashamed and distressed.

Morgan Stanley, Credit Suisse and Barclays declined to comment.

Luckin shares were down a further 15.4 percent in early afternoon trading in NY on Monday.

The class B shares will be converted into American depositary shares (ADS). Shares soared by more than 50 per cent during initial trading.

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Shares of Luckin, which competes in China with Starbucks Corp (O:), sank as much as 81% on Thursday in NY after it said the investigation had found that fabricated sales from the second quarter of 2019 to the fourth were about 2.2 billion yuan ($310 million).

Bankers and investors warned on Friday that Luckin's issues were likely to weigh on other Chinese companies considering a U.S. IPO - a group already affected by the trade tensions of 2019.

That equates to about 40% of the annual sales projected by analysts, according to Refinitiv IBES data.

Just a year ago, one of China's largest listed drug-makers, Kangmei Pharmaceutical, said it had overstated cash holdings by more than US$4.3 billion (S$6.2 billion).

The default comes after Luckin, a major rival to Starbucks in China, said last week that much of its 2019 sales were fabricated, sending its shares plunging as much as 82 percent in U.S. trading and sparking an investigation by China's securities regulator.

Like others in the industry, the company has been hit hard by the coronavirus epidemic.

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