Luckin Coffee is considering a Hong Kong listing, as China’s Starbucks challenger charts a comeback from its 2020 Nasdaq expulsion after it overhauls its business of selling coffee. The chain, headquartered in the Fujian provincial city of Xiamen, obtained a so-called “light touch provisional liquidation” approval from the Cayman Islands that allowed a new management team to work with its liquidator to keep its business growing in China after firing three senior executives for fraud. That helped Luckin expand its network of coffee kiosks – where takeaway orders are made via smartphone apps, with no dine-in space – by 26 per cent in two years to 6,024 all over China at the end of 2021, surpassing the 5,400 outlets operated by Starbucks. Fourth-quarter revenue jumped 81 per cent to 2.44 billion yuan (US$362.83 million), and Luckin even received the endorsement of the Olympic freestyle skiing double-gold medallist Eileen Gu . “The light touch regime allowed [Luckin’s] board to continue running the business, which is essential because it allows someone who knows the coffee business to continue to run the network,” said Tiffany Wong Wing-sze, managing director of the consulting firm Alvarez & Marsal, the provisional liquidator of Luckin since July 2020. “It’s rare for a company like Luckin to complete its restructuring so quickly; it needs the cooperation of the management, employees, the creditors and regulators.” Luckin’s comeback is a remarkable turnaround for a company built on speed. It took just 19 months from its very first coffee kiosk to its May 2019 initial public offering (IPO) on the Nasdaq market in New York. Just as quickly, the Starbucks wannabe turned into a stock market pariah after it was called out for accounting fraud. An independent committee investigated the fraud and blamed several executives for faking 2.12 billion yuan of sales in 2019. That led to the firing of chief executive Jenny Qian Zhiya, chief operating officer Liu Jian, and co-founder Charles Lu Zhengyao. Luckin was kicked off Nasdaq in late June 2020, 13 months after its listing. Luckin’s dramatic flame-out left thousands of investors with a hangover. A class-action suit ensued, seeing the company pay hundreds of millions of dollars in damages. Happening ahead of the highly polarised 2020 US presidential election, the episode gave voice to hawkish US congressmen, who pushed to enact the Holding Foreign Companies Accountable Act (HFCAA) in December 2020. The law requires US-listed foreign companies to comply with audit inspection rules under the Public Company Accounting Oversight Board (PCAOB), or face the risk of being delisted from US stock exchanges after three consecutive years of non-compliance. The US Securities and Exchanges Commission (SEC) is adding more than 200 US-listed Chinese stocks to a list of companies liable under the HFCAA, several at a time . Luckin’s provisional liquidator restructured US$460 million of Luckin’s convertible bonds for creditors to retrieve their full investments. Luckin also successfully negotiated with regulators and settled all its class action lawsuits in the US. It paid the SEC a US$180 million penalty , another 61 million yuan of fines to China’s securities regulator. Another US$187.5 million was paid as restitution to settle its shareholder lawsuits. A key challenge, Wong said, was to convince the State Administration of Foreign Exchange (SAFE), the gatekeeper of capital flows of the country, to allow the company to bring such large sums of money out of China for the settlement. Didi, Luckin Coffee’s listing debacles shed light on liability insurance “SAFE had been supportive and approved the capital outflow as they saw that Luckin was doing the right thing to rectify its past problems,” she said. “This is to restore the confidence of the international investors to the mainland companies.” The company’s depositary shares, which now trade over the counter since delisting in June 2020, jumped to US$7.19 on Friday, rising sixfold since its delisting before the restructuring. With its business back on track, Luckin’s management is considering to relist to tap the capital market for funds. Hong Kong, the main stepping stone to China’s consumer market and the world’s top fundraising hub in seven of the past 12 years, is a natural choice, according to two sources familiar with the plan. China to allow class-action lawsuits for small investors burned by fraud Wong declined to comment on Luckin’s listing plan, and the company did not respond to queries by the Post . “The Company’s recent completion of the provisional liquidation plays a major role in advancing our growth strategy as it allows us to operate from a position of greater financial strength and unlock our full potential,” Luckin’s co-founder Guo Jinyi said in the company’s 2021 financial statement, after replacing Lu as chairman. “As we enter 2022, we are energised and cognisant of predicted macroeconomic headwinds, including the recent outbreak of Covid in China,” Guo said, adding that the company would continue to introduce services and products to improve earnings and long-term value for shareholders.