Luckin Coffee Surges 10% on Debt Restructuring Update

After all, financial fraud didn't make China's biggest coffee chain any smaller, and investors are hoping Luckin will not repeat past mistakes.
Sep. 02, 2021 16:45
Luckin Coffee Surges 10% on Debt Restructuring Update

Shares in Luckin Coffee Inc. (OTC: LKNCY) surged Thursday despite seemingly sour news: China's biggest coffee chain just said it is extending its debt restructuring to later this month. While shares in the company slid pre-market, they quickly reverted to gains of 10% by midday in OTC trading.

The date has been moved from Sep. 1 to Sep. 22, as announced in a statement posted after markets closed on Wednesday. Luckin said the postponement will "allow additional time for the relevant parties to continue documenting the agreed terms of the Restructuring."

The restructuring support agreement (RSA) was first announced in mid-March after the company filed for Ch. 15 bankruptcy. Luckin said it will provide recovery to the majority holders of its $460 million 0.75% convertible senior notes of between 91% to 96% of par value.

The agreement would restructure the debt as follows: via the repayment of 32% in cash, 23% in 9% one-year senior notes, 30% in 9% five-year senior notes, and 6% in a number of ADSs in Luckin Coffee, according to the report. In April, Luckin announced it has received a $250 million investment from two private equity firms. That likely helped the company complete a financing milestone under the RSA in June, according to a statement at the time.

Following last night's report, shares in Luckin were trading at $14.44 per share today – a striking comeback from its level of under $3 per share in September 2020. Last year, Luckin became known as the biggest flop among Chinese stocks after reaching over $50 a share before tanking to the pink sheets following a short-seller report and the authorities' investigation. The probes ended with a $180 million fine to the U.S. Securities and Exchange Commission and a $9 million fine to the Chinese authorities. And the delisting, of course.

The case caused a rupture on both Wall Street and Washington and led to the imposition of the Holding Foreign Companies Accountable Act that required foreign companies to succumb to PCAOB auditing for better protection of the U.S. investors.

The company has since been led by a new chairman and CEO, Jinyi Guo, and made strides to stabilize its operations and market standing. Indeed, Luckin has been among the few Chinese stocks that have gained significantly this year as most companies have been suffering from the regulatory crackdown at home and the Sino-American tension overseas. Year-to-date, the stock in LKNCY is up 67%, with just a handful of U.S.-listed Chinese companies, like Futu Holdings Ltd. (Nasdaq: FUTU) and I-Mab (Nasdaq: IMAB), able to boast of similar or better YTD gains.

And thus, the company that got delisted from the Nasdaq stock exchange after confirmed financial fraud just may beat the odds and revive. Already, it seems to be getting back that investors' trust.