The reason why Ruixing coffee plate was suspended in front of Luckin Coffee what's going on?

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Qianjie-Luckin Coffee suspended trading

Luckin Coffee, which is listed in the United States, issued an announcement on April 2, 2020. during the audit, it was found that the company COO and others had falsified data, with a related amount of about 2.2 billion yuan. As soon as the news came out, Ruixing plummeted 85% before trading, closing down 75.57%, evaporating RMB 35.2 billion a day. For two days in a row, the share price fell by 90%.

Some people say that when you used to buy lucky (coffee) at a discount of 1.8%, you can still buy Ruixing (stock) at a discount of 1.8%. The rise of lightning and the collapse of lightning is the biggest crisis that lucky has ever encountered. But its impact goes far beyond Lucky itself.

Lucky to encounter the biggest crisis

Why did Ruixing blow himself up? The main reason is that the lid can't be covered.

As early as January 31, 2020, the international short selling agency Muddy Waters (Muddy Waters) released a report that exposed Ruixing exaggerating its income. It is reported that the report is 89 pages long, involving the work of 92 full-time investigators and 1400 part-time investigators, collecting more than 25000 small tickets and more than 10000 hours of store videos. The report found that the number of goods sold by Lucky in the third and fourth quarters of 2019 was falsely high by 69% and 88% respectively.

Muddy water is no stranger to those who are familiar with the capital market. Over the years, muddy waters have repeatedly shorted Chinese stocks, such as New Oriental, Huishan Dairy, Anta Sports, learning and thinking about the good future of the parent company, and so on.

At present, Muddy Waters has a good success rate of shorting. According to the 21st Century Economic report, nine of the 18 companies that are short are still trading normally, one is suspended and eight are delisted (including being acquired or returning to A-shares). Interestingly, Carson Block, whose founder is a lawyer, derives the word "muddy water" from the Chinese idiom "fishing in troubled waters".

The Triple influence of the Lucky incident

I'm afraid the problems facing Rui Xing are not as simple as those disclosed. In the future, there will be at least three effects.

First of all, according to the current information, Ruixing disclosed the people involved, mainly the company's chief operating officer (COO) and director Liu Jian and several employees who reported to him. Is a COO, his authority, enough for him to engage in such a risky action? What's his motive? It does not require much expertise, and even for ordinary people, it is enough to raise reasonable doubts about it.

It's hard to convince people that a COO can hide it for so long. It can be expected that class action is inevitable.

Second, a lucky fell down not to say, listed in the United States of China stocks can be said to be concentrated lying gun. Lucky's share price plummeted on the same day, many Chinese stocks have fallen. Has been listed, the stock price is affected, not listed, in the shadow of "fraud", do not think about it for the time being.

In addition to fraud, Lucky's high-level pledge of stocks and other techniques are not original, but are more common in Chinese-listed companies. A friend sighed to me that if Lucky triggered a class action, then Chinese companies with similar operations would probably have something to do with it.

A detailed study of the lucky model

Behind the story of Ruixing's rapid rise and fall is the multiple games of technology capital finance. Lucky from its establishment to listing, but a year and a half, was once regarded as a miracle. However, Luckin Coffee's miraculous rise looks special, but in fact, the core of dismantling the essence is to win quickly and tell a good Chinese story.

In September 2018, Luckin Coffee became the first coffee shop in China with a valuation of US $1 billion. Guo Jinyi, co-founder at the time, said in an interview with the Financial Times that Lucky was now thinking more about how to expand quickly than about profits.

In 2018, Ruixing plans to have 2000 stores by the end of the year. At that time, Starbucks had about 3300 stores in China and opened about 50 new stores every month. Subsequently, Lucky surpassed Starbucks in the number of stores. At present, Lucky has more than 4500 stores and is constantly expanding. By contrast, British Costa Coffee or Peets Coffee is even more difficult to match in terms of store expansion.

After listing, Lucky's pace of expansion has not stopped. As early as mid-2019, Qian Zhiya, founder and CEO of Luckin Coffee, said that the number of lucky stores would reach 10, 000 in 2021. Fortunately, it took only a year and a half from its establishment to its listing, which can be said to be a real blitzkrieg. Chinese kung fu is fast but not broken.

If it were not for this fake storm, how long would Ruixing's wind-like speed last?

Counterfeiting is not the only problem worth reflecting on. Behind the Luckin Coffee incident, there are many questions worth thinking about. The background of Lucky's rise is also the rising tide of global capital markets in recent years. When China's growth story, put on the cloak of new technology, in the Western capital markets, can create a brilliant Chinese imagination.

The recent collapse of US stocks has attracted a lot of attention. In fact, US stocks have been improving for more than a decade. This bull market in US stocks, which is almost the longest in history, has also brought a lot of imagination to the primary market. Ruixing's story seems to be dressed in a new cloak of the Internet, but in fact, it is the huge market capacity of China-the same motivation for foreign companies to enter China in search of "billions of consumers".

In the new era, with the help of a little bit of Internet model halo, coupled with capital blessing, success seems to be so easy, but in the end, it is the secondary market investors who will pay the cost. However, are they the only ones paying the bill? Any major event has its own influence, which is the so-called externality in economics.

The financial link between China and the United States has shown signs of decoupling under the trade war and the epidemic. Now, because of the image and valuation of a lucky Chinese company, the losses are borne collectively.

On April 2, 2020, Ruixing submitted a report to the Securities and Exchange Commission (SEC). The report said that after the investigation by the special committee of Ruixing's board of directors (which should be SEC questioned Ruixing after questioning Muddy Waters and asked Ruixing to conduct a self-investigation), it was found that Liu Jian, the company's chief operating officer and director, and several employees who reported to him had committed misconduct, including fabricating certain transactions. The sales amount of 2.2 billion yuan was forged from the first quarter to the fourth quarter of 2019.

As soon as the news came out, the share price flashed before the session, falling 85% at one time, triggering five circuit breakers in the first 40 minutes, plunging 75.57%, and the market value lost more than 30 billion yuan. At present, Luckin Coffee has announced the suspension of trading.

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