The accounting scandal at Luckin Coffee may have knock-on effects, as the case may not only lead to bankruptcy for the company itself but also deal a heavy blow to other U.S.-listed Chinese enterprises - as well as those that are planning IPOs in the U.S., analysts said.
Given the sensitive timing, with the U.S. market hit hard amid the viral epidemic, the Luckin case will exert a negative impact on Chinese companies in various sectors that are listed in the U.S., Zhang Yi, CEO of Shenzhen-based iiMedia Research, told the Global Times on Monday.
"It will strike a heavy blow - a credibility crisis - for Chinese companies that are already listed on Wall Street, and it will also have a follow-up impact on domestic companies that are planning IPOs in the U.S.," Zhang said.
The coffee start-up, widely regarded as Starbucks' China rival, admitted on Thursday that its chief operating officer, Liu Jian, and his subordinates "had engaged in certain misconduct, including fabricating certain transactions." The fraudulent sales reportedly totaled 2.2 billion yuan ($310 million).
The share price plummeted 70 percent overnight in response.
The company apologized in a statement on Sunday, saying that senior executives involved in the incident had been suspended, the company's board had set up a special committee, and a third-party agency had been entrusted with a "thorough investigation" of the incident.
Although the company is maintaining normal operations, including staff management and business at its physical stores, Zhang predicted that Luckin is likely to go bankrupt, and there would be no further investors. The start-up cannot survive without earning anything, Zhang said.
"But if Luckin is able to shoulder its legal responsibilities, it is possible that it would be acquired," Zhang said.
In response to the incident, analysts cautioned that the U.S. Securities and Exchange Commission might expand its investigation to more Chinese companies listed in the U.S., exerting more pressure on companies that have already been hit hard amid the pandemic.
It is not a good thing for Chinese regulators and companies, but it's not entirely a bad thing since domestic small and medium-sized private companies should draw a lesson from the case. They are expected to learn the rules of the global markets during the process of "going out" to improve their comprehensive competence and internationalization level, said Liang Haiming, dean of the Belt and Road Institute at Hainan University.
Chinese regulators are expected to explore domestic financial reform via guiding qualified companies to list in the nation's A-share market and carefully scrutinizing those planning IPOs in the U.S. to avoid unqualified companies being listed in the U.S. and harming other Chinese companies' credibility, Liang told the Global Times on Monday.