Bun/Kawakawa
Edit/Gale
Completed debt restructuring, met the fine obligations stipulated in the settlement agreement with the SEC (Securities and Exchange Commission), added about 360 stores in January, tripled sales during the Spring Festival holiday, and marketed out of the circle with Gu Ailing... At the beginning of 2022, all kinds of signs show that Luckin is returning to the mainstream vision and capital market with a new attitude.
With the gradual settlement of historical problems and the return of business to the right track, whether Luckin can return to nasdaq has once again become a hot topic of discussion among all parties.
But as a company with a serious history, is it really possible for Luckin to return to the capital market?
The legacy of history has been completely erased
It is undeniable that after two years of transformation, Luckin is no longer the past Luckin - not only in terms of business style and the past, from rough expansion completely to more pragmatic and refined operation; more importantly, the application for bankruptcy and restructuring in the state of liquidation of Luckin is also about to become a thing of the past.
On 31 January this year, Luckin issued an announcement announcing that the debt restructuring plan had been substantially completed, and the parties hoped that, as soon as reasonably practicable, they would apply to the Cayman Court to withdraw the winding-up petition by consensus as soon as possible, thereby lifting the appointment of the joint provisional liquidators.
Once the provisional liquidators step down, this is equivalent to announcing that Luckin has completely ended the liquidation and will return to normal operations. This clears the most important obstacle to returning to the capital market.
Of course, returning to normal business is only a basic premise. Whether it can return, there are two most critical factors, one is the attitude of the Chinese and AMERICAN regulators to Luckin, and the other is the attitude of capital to Luckin.
First of all, from a regulatory point of view, it is often overlooked that Luckin and the SEC have solved the problem of financial fraud by reaching a settlement agreement, and it should be known that there is an essential difference between settlement and judgment. Similar to the 2018 SEC and Musk settlement, the final settlement agreement allows Musk to not admit or deny the relevant charges, that is, Musk is still innocent and can retain the CEO position despite paying the fine.
Luckin is the same, the settlement means that Luckin has not left a legal background, and on the issue of listing, it will not be treated specially because of historical issues. To some extent, this also shows the SEC's attitude towards Luckin, and does not want to be killed with a stick, but is more happy to see Luckin, who actively corrects its own mistakes, can get back on track.
According to luckin's announcement on February 5 this year, Luckin has paid the SEC a fine of $180 million agreed in the settlement agreement, and the fine can be offset by cash paid to corporate bondholders under Luckin's already declared offshore principal convertible bond debt restructuring plan.
In other words, Luckin does not really need to pay a $180 million fine to the SEC, but only a formal fine, which further confirms the attitude of the SEC.
In this regard, the "queen of U.S. stocks" Hou Xiaotian believes that the U.S. SEC does not involve listing approval, but only review, and the responsibility of the SEC is to protect the interests of investors. If the SEC believes that the protection of investors is in place, it is completely possible to return to NASDAQ according to the regulations. According to the new regulations of China's regulators, for companies that have not yet been listed, there are now many matters and departments that need to be submitted for approval, and it is obviously more difficult to go public in the United States. However, for companies that have already been listed, they are not in the issue of safety information approval and approval, and Luckin re-listing belongs to the transfer from the powder single market, rather than unlisted companies.
As far as the capital side is concerned, the participation of top private equity investment institutions such as IDG Capital and Ares SSG has actually shown their attitude towards Luckin with actions. "Because these institutions generally do extensive and in-depth due diligence in advance before investing, only when Luckin's current management is stable, has the potential to lead the market for a long time, and the hidden dangers caused by early fraud have been eliminated, these institutions will shoot, and in the future, it is likely to return to the mainstream capital market including the NASDAQ main board." Hou Xiaotian said.
In addition, the equity of the original counterfeit management such as Lu Zhengyao has been completely liquidated, and in September last year, Luckin also signed a $187.5 million settlement letter of intent with the plaintiffs' representatives in the US class action lawsuit. It can be said that the historical obstacles that were once placed in front of Luckin have basically been solved, and in theory, Luckin's return to nasdaq is no longer much of a problem.
The performance continued to be positive
But for Luckin, the transformation lies not only in the removal of historical obstacles, but also from the comprehensive reversal of business fundamentals.
According to Luckin's third quarter financial report released in December 2021, the total net income of Luckin Coffee in the third quarter of 2021 was 2.3502 billion yuan, an increase of 105.6% year-on-year; the net loss was 23.5 million yuan, a decrease of 98.6% year-on-year; the average monthly trading customer was 14.7 million, an increase of 79.2% year-on-year; and the operating profit margin of stores increased to more than 25%.
This is already a number of consecutive quarters of Luckin to maintain more than 100% growth.
Two years ago, Muddy Water said in a short-selling report that Luckin could not achieve both subsidy reduction and sales growth. But now, Luckin has clearly taught Muddy Waters a vivid lesson.
The root cause of making this impossible possible lies in Luckin's ability to innovate. According to Luckin's open letter, in 2021, Luckin launched a total of 113 new products. Among them, the raw coconut latte set a record of selling more than 10 million cups in a single month, and another explosive product, the velvet latte, also exceeded the sales of 2.7 million cups in just 9 days after it was launched.
The popularity of raw coconut lattes even once put the supply of coconut milk in short supply across the country and became the norm for a long time. This year, after Luckin spokesperson Gu Ailing won the first battle, the social platform set off a boom of "drinking Luckin and Sungu Ailing Cup Sets", and the "Gu Ailing Recommended" series of drinks were directly sold out.
It can be said that this ability to innovate and create explosive models has directly changed the image of Luckin in the minds of consumers and made consumers willing to pay a higher premium for this.
The "explosive strategy" coupled with the combination of "precision marketing" also makes Luckin more attractive to consumers. According to Luckin's 2021 third quarter financial report, Luckin's latest average monthly trading users were 14.7 million, an increase of 79.2% over the same period in 2020.
In addition, luckin's store scale is also under the support of the new brand image, back to the growth track, according to calculations, the current number of Luckin stores is likely to have exceeded 6,000, comprehensively surpassing Starbucks, becoming China's largest coffee chain brand.
The continuous improvement of the operating side has also made Luckin fully meet the listing standards of NASDAQ in terms of fundamentals.
Calls for a return to nasdaq are high
Twenty years ago, Enron, also suspected of financial fraud, was fined $500 million and ended in bankruptcy. The three major investment banks suspected of involvement in financial fraud, namely Citigroup, JPMorgan Chase and Bank of America, were fined $2 billion, $2.2 billion and $69 million, respectively.
In contrast, Luckin has clearly taken a completely different path.
"Previously, many companies with similar problems in the United States eventually disappeared, but if Luckin returns to NASDAQ, it will undoubtedly become a landmark case on the world." This will be very helpful in improving and enhancing the image of Chinese stocks among international investors in the context of the sharp decline in the trust of international capital in China stocks. At the same time, for SCE, this not only protects the interests of investors, but also achieves regulatory demands and maintains the dignity of the law. Hou Xiaotian said.
From this point of view, Luckin's return to nasdaq is obviously also the best choice for the interests of all parties.
This is especially true for Dapu Capital, which has become the actual controller of Luckin Coffee. Looking back at the restructuring process of Luckin, Dapu Capital, as the capital, can be said to have played a huge role in the entire debt restructuring process of Luckin Coffee, not only stabilizing the situation and reorganizing the board of directors for the first time in the early financial fraud dilemma, helping Luckin to continuously improve the governance structure, but also not sending an executive to Luckin, and absolutely trusting and fully supporting Luckin's new management team, and supporting the company to carry out a new round of employee equity incentives at the most difficult time for the company's development, forming a benefit distribution mechanism that is more in line with market laws. Let the new management team do their best to lead Luckin to achieve a complete reversal.
The reason why Dabao Capital is so dedicated to supporting Luckin, in addition to hoping to obtain greater investment returns on Luckin, as the first major project of Dapu Capital's investment, if Luckin can return to NASDAQ, it will undoubtedly make the influence of The Capital Market of GreatErbill Capital rise to a new dimension.
Therefore, promoting Luckin's return to NASDAQ will obviously become the focus of Dapu Capital's work.
Some of Luckin's actions have repeatedly confirmed its attitude and determination to return to nasdaq.
Because for companies like Luckin that enter the powder single market, there is usually no financial disclosure requirement. However, Luckin still chooses to release the financial report on schedule, the purpose is obviously not to be limited to the release of the performance action itself, but also hopes to use transparency to enhance the confidence of all parties and make sufficient preparations for the return to NASDAQ.