Luckin Coffee: can China’s Starbucks win back investors?
Luckin Coffee has been a symbol of Chinese capitalism’s dynamism, the subject of a massive fraud scandal, and now — as its new senior executives insist — a plucky comeback story with the potential to test US-China relations.
Founded in 2017, the coffee shop chain quickly expanded across China, establishing a domestic rival to Starbucks. Only two years later, Luckin listed on Nasdaq with a market capitalisation of $13 billion, luring investors with the prospect of booming Chinese consumer demand.
However, the company imploded in 2020 after it was revealed that it had defrauded investors by fabricating over $300 million in sales. Luckin was delisted from Nasdaq and forced to pay the US Securities and Exchange Commission $180 million to settle charges.
The scandal stung investors such as BlackRock and GIC and served as the latest illustration of the Big Four auditors’ failure to detect irregularities in company financial statements — Luckin was audited by EY.
Most significantly, it sparked a political debate over the presence of Chinese companies on US capital markets. The scandal was used by some US senators to demonstrate how untrustworthy Chinese corporations are, as part of a broader effort by some in Washington to decouple the US financial system from China.
However, Luckin is hoping that investors, regulators, and even politicians have forgotten about the entire incident two years later. According to people familiar with the matter, the Chinese coffee chain is staging an audacious comeback that includes raising new capital, meeting with investors, and plotting with advisers to relist its shares in the United States.
