Year 2020 is a tough one for the Chinese listed companies and their investors from the global scale. Triggered by the massive fraud of NASDAQ-listed Coffee Giant Luckin, investors who invested in Chinese enterprises could be the most ‘unlucky things’. And the blast continually affects ASX as well, as several Chinese firms withdraw from Australia’s stock market.

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An ‘UnLuckin’ Scam

Luckin Coffee was one of the fastest-growing start-ups in modern history and one of the most anticipated IPOs of 2019. But now, following the company’s disclosure of a fraud of hundreds of millions of dollars, Luckin’s journey has come to its end.

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The company, in a statement filed with the SEC, said that it would not contest Nasdaq’s decision to delist it after having received two notifications of the stock exchange’s desire to push the China-based coffee chain from its market. –edited from Danny Crichton, Techcrunch

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After raising almost US$600 million in an initial public offering in the United States last May and another US$800 million in January, the company announced in April that US$310 million of its sales – about half – for the last three quarters of 2019 were fake. An independent investment firm found Luckin out by sending more than 1,500 people to sit in some 600 of Luckin’s stores and count transactions.

Jenny Qian Zhiya, chief executive officer of Luckin Coffee Inc., right, and Charles Zhengyao Lu, chairman and founder of Luckin Coffee Inc., stand for photographs before ringing the opening bell during the company's initial public offering (IPO) at the Nasdaq MarketSite in New York, U.S., on Friday, May 17, 2019. Luckin Coffee, a challenger to Starbucks Corp. in the race to dominate China's growing coffee culture, climbed in its trading debut after raising $561 million in an expanded U.S. initial public offering. Photographer: Victor J. Blue/Bloomberg via Getty Images

Jenny Qian Zhiya, chief executive officer of Luckin Coffee Inc., right, and Charles Zhengyao Lu, chairman and founder of Luckin Coffee Inc., stand for photographs before ringing the opening bell during the company’s initial public offering (IPO) at the Nasdaq MarketSite in New York, U.S., on Friday, May 17, 2019. Luckin Coffee, a challenger to Starbucks Corp. in the race to dominate China’s growing coffee culture, climbed in its trading debut after raising $561 million in an expanded U.S. initial public offering. Photographer: Victor J. Blue/Bloomberg via Getty Images

 

Luckin’s breakneck growth and pricing strategy were also at odds with its claim to be “focusing on providing high-quality coffee items” – and achieving profitability.

It’s virtually impossible to focus on quality when you’re opening over 4,000 stores in a little over two years. It seems also virtually impossible to sell quality coffee at a profit when, as one of Luckin’s executives told CNBC, “the price point that we’re looking at is going to be maybe half of the price point from some of our competitors, including Starbucks”.

But perhaps the most absurd claim in Luckin’s prospectus was the one made at the macro level. Citing a market research report it commissioned, Luckin noted that coffee consumption per Chinese in 2018 was a minuscule 6.2 cups and held out “other developed countries and regions in Asia” as examples of the possible: Taiwan (209 cups per capita), Hong Kong (249), Japan (279), the US (388), and Germany (867).

China has hundreds of millions people who live on US$10 a day or less. The only time they’re going to pop into a Luckin store will be to pick up their freebies.

In the back of every dodgy businessperson’s mind in China, there seems to be the idea that cheating investors in America is both easier and less risky than cheating investors at home, as the US Securities and Exchange Commission is far away.

But Luckin’s fraud says as much about the diminution of American regulators’ once-fierce reputations, and it couldn’t have come at a worse time for China’s honest businessmen. The SEC caved a few years ago when Beijing said it would not allow US regulators access to audit working papers of Chinese companies, a concession many believe it should never have made. Clearly with an eye on Luckin’s fraud, US lawmakers are now looking at banning Chinese listings altogether from US capital markets.

It’s way too late for Luckin’s burnt investors. But one man’s trash is another man’s treasure. Those who figured out the con and shorted Luckin’s shares before they tanked give the saying a whole new meaning.—-edited from Robert Boxwell, South China Morning Post

Chinese ventures delisted from ASX (2018 & 2020)

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In Year 2018,A record six Chinese companies were delisted from the Australian Securities Exchange (ASX), with controversial health firm Traditional Therapy Clinics the latest to be removed.

But why do Chinese companies want ASX listing at the first place? There are a number of reasons why Chinese companies seek to list on foreign exchanges.

Apparently it helps them get wealth out of China and there are often also Chinese Government incentives for companies that successfully list overseas.

Chinese companies starting rushing to the ASX a few years ago. “The advantage with Australia is you’ve got easier listing rules (than some other foreign exchanges) … you’ve got a main board listing and you’ve got a pretty sophisticated investor base in Australia,” said Marcus Ohm, audit partner at HLB Mann Judd.

“We’ve got compulsory superannuation, so you’ve got a big pool of investor funds ready. People generally understand speculative companies a little bit better in Australia I think.”

The prestige of being listed on a well-regarded foreign exchange is another key reason. Meanwhile, some believe Chinese companies coming to the ASX doesn’t make clear sense. “I think they list for the wrong reasons. Some of them list just because they want to bring wealth out of China,” Mr Beer said.

Another advisor also told the ABC he was sceptical about the motives Chinese firms had for listing on the Australian exchange. Although the ASX no longer targets China like it did in the 1990s — there remained clear advantages for the ASX in listing foreign companies. “All exchanges want to grow the number of listed companies that they have. They get listing fees,” Mr Ohm said.

“They do do work to try and attract overseas companies to the exchange but the other side of that is they are not going to change the standards they expect.”

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China Dairy Corporation was among the higher profile delisting cases in 2018. The reasons for its removal included corporate governance concerns, failure to inform the market of successful legal proceedings against one of its subsidiaries and completing the transfer of shares in a subsidiary without shareholder approval.

An advisor who has helped list Chinese companies in Australia told the ABC the firms often struggled to grasp Australia’s accounting standards and had trouble producing financial statements.—edited from abc.net.au

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In early August 2020, we see another high profile Chinese company—-Dongfang Modern Agriculture, which was worth almost AUD 1 billion, vanished, triggering calls by investors and several former insiders for an official investigation. Before it sparks the public, the company got some healthy exposure on several main-stream papers, until almost all the key executives resigned recently. Again, the case could be very unfair for the local investors as well as for the Chinese businessmen who are doing the right things.

Maybe it is too early to judge Dongfang Modern Agriculture, but too hurtful already for the other Chinese still-listed companies in ASX.

Edited by Joreal Qian