Starbucks of China could soon be de-listed over fraud allegations
On Monday, a press release issued
by Goldman Sachs said Haode Investment defaulted on a $518 million margin loan
to a collection of banks. Goldman was one of those banks. Haode is controlled
by the family trust of Luckin Coffee Chairman Charles Zhengyao Lu. The shares
that were pledged as collateral on the loan were controlled by CEO Jenny Zhiya
Qian's family trust.
Q1 2020 hedge
fund letters, conferences and more Almost 611 million shares of Luckin Coffee
stock were put up as collateral for the loan, according to Goldman Sachs. The
investment bank said the lenders have begun the enforcement process against the
collateral in connection with the default on the loan. That includes conversion
of the Class B ordinary shares into American Depository Shares.
Goldman also
said that if the syndicate of banks sold all the pledged shares, Qian's voting
rights in the coffee chain would "decrease significantly." However,
Lu's voting status would not change much.
Lone Pine exits
the stock, Chanos closes short
Steve Mandel's
Lone Pine Capital did have a sizable position in Luckin Coffee. S&P Capital
IQ's data indicates that the fund was the Chinese coffee chain's
seventh-biggest shareholder. A regulatory filing revealed that the fund's stake
in Luckin Coffee fell below 5% the same day the company disclosed that a
significant portion of its sales had allegedly been fabricated. The following
day, the stake fell to zero.
Short-seller Jim
Chanos of Kynikos Associates told CNBC that he did have a short position in
Luckin Coffee earlier this year, having taken it after Muddy Waters' Carson
Block published his thesis. However, Chanos closed the position on Thursday.
The company revealed then that an internal investigation had uncovered about
$310 million in fabricated sales.
Luckin Coffee
halted, could face delisting
China Daily
reports that Luckin Coffee faces the possibility of delisting after it reported
the fabricated sales. Dong Dengxin of the Wuhan University of Science and
Technology's Finance and Securities Institute told the news outlet that in
addition to delisting, the company may face a class-action lawsuit filed by
shareholders. The result of that lawsuit could even go as far as bankruptcy.
In addition to
civil compensation, Dong said the company could also be saddled with criminal
and administrative fines. Further, the employees found to have fabricated the
sales could even go to prison. Luckin Coffee said last week it had suspended
the employees that were involved.
For now, it
definitely looks like trading on Luckin Coffee stock has been halted, but it's
unclear why. However, Ucar, of which Luckin Chairman Lu is the biggest
shareholder, has also halted trading of its stock. According to Reuters (via
Yahoo! Finance), Chinese regulators questioned Ucar about how the fraud
allegations against Luckin Coffee would affect it. Ucar officials decided to
halt trading in their stock to avoid abnormal price fluctuations.
Comments
Post a Comment