Semis in demand 08 Waivers alert Down Under 08 Nomura experiments with blockchain 09
with a fairly flat curve, so the
new issue concession was
estimated at 20bp–25bp for the
two tranches.
Even with that concession,
Nasdaq-listed Baidu achieved
the lowest yield it had ever paid
for a 10-year tranche.
Total orders peaked at
around US$12bn and were in
the region of US$10bn at final
pricing. Around half of the
bonds went to US investors,
with Asia also well represented
and Europe taking a smaller
amount. Official statistics had
yet to be released.
Although Baidu reverted
to the more traditional Asian
deal execution, announcing
price talk at the start of the
Hong Kong working day and
pricing at the US close, the
DCM banker said the success
of the AIA trade suggested that
Yankee or Global issuers from
Asia could simply open books
in the Hong Kong afternoon.
“A 14-hour bookbuild is as
anachronistic as a seven-day
roadshow,” he said. “Three
months ago seems like a
different world.”
For now, Asian deal flow
looks likely to be dominated
by 144A offerings of high-grade
names, though bankers think
some of the region’s frequent
issuers, like Korean quasi-
sovereigns and Japanese names,
are likely to baulk at the
thought of paying new issue
concessions of 25bp or higher.
“There is something
psychologically holding Asian
issuers back from pulling the
trigger,” said the DCM banker.
“I expect a lot of them to wait
until late April or May to see if
things get better.”
Citigroup, Morgan Stanley
(B&D), Goldman Sachs, HSBC,
Standard Chartered and Wells
Fargo were active bookrunners
for the AIA trade.
Goldman Sachs and Bank
of America were joint
bookrunners for Baidu’s SEC-
registered deal, and Bank of
Communications, Hong Kong
branch, was co-manager. Coffee spill hits ECM pipeline
Equities/Bonds Luckin Coffee scandal adds to US mistrust of Chinese issuersBY FIONA LAU, CAROL CHANA brewing accounting scandal at
China’s LUCKIN COFFEE has emerged
as the latest threat to the
pipeline of Chinese listings in an
increasingly hostile US market.
Luckin, listed on the Nasdaq
less than a year ago, lost 80% of
its value on Thursday after it said
an internal probe found that its
chief operating officer and other
employees had fabricated sales
totalling Rmb2.2bn (US$310m) in
the final nine months of 2019.
Seen as China’s answer to
Starbucks, Luckin’s technology-
enabled model and rapid growth
had made it an investor favourite
since its US$645m IPO in May
2019, with the stock surging
from a US$17 IPO price to an
all-time high of US$51.38 on
January 17.
The accounting scandal,
however, will put other Chinese
issuers under suspicion at a time
of heightened tensions between
the US and China. US President
Donald Trump last year floated
the idea of banning Chinese
companies from the US stock
market, part of a long-running
dispute over audit accountability.
“This reminds me a little
of what went on after a series
of accounting and corporate
governance scandals of US-listed
Chinese companies in 2011.
Chinese IPO activity in the US
almost came to a halt in the next
two years,” said one ECM banker.
Share prices of US-listed
Chinese companies tumbled in
2011 amid concerns about the
sustainability of China’s growth
and allegations of accounting
fraud at overseas-listed Chinese
companies. Sino-Forest, for
example, collapsed in 2011
after short seller Muddy Waters
accused the company of being a
Ponzi scheme.
“Trump won’t let it go. It’s
another opportunity to attack
China,” said another banker.“China-US listings are already
slow amid the coronavirus
outbreak. This will unavoidably
dent investors’ confidence and
some companies may now
consider listing in Hong Kong
instead.”
Planned sizable China-to-US
listings this year include the
US$600m–$800m float of online
grocery and delivery firm DADA
GROUP and the US$500m–$1bn
offering each from budget store
chain MINISO, flexible display
maker ROYOLE and online audio
platform XIMALAYA FM.
In January, Luckin and its
shareholders raised US$580m
from a follow-on and the
company also raised US$460m
from a convertible bond. Credit
Suisse, Morgan Stanley, CICC
and Haitong International
arranged both the 2019 IPO
and the January fundraising.
At Thursday’s close of US$6.40,
investors who bought at the
January placement price of
US$42 a share are down 85%.
“Any time you have fraud
you just have to get out,” one
New York-based ECM banker
said. “The analysts have to put
their estimates on hold and the
underwriters will have a lawsuit
on their hands.”CAR CRASH
CAR INC’s shares and bonds
slumped on Friday after Luckin’s
announcement. CAR and Luckin
are separate companies in
entirely different industries,
but the market sees the two
as related given that both are
controlled by Lu Zhengyao.
CAR’s Hong Kong-listed
shares were suspended at
10:14am pending a clarification
announcement after they
plunged as much as 72% in
morning trading, while the cash
price of its two outstanding
dollar bonds fell more than 25
points. Its shares last traded at
HK$1.96 (US$0.25), down 54%from Thursday’s close.
The company’s 6.00% bonds
due 2021 slumped about 29
points, last quoted at 47/52,
while its 8.875% bonds due 2022
were quoted at 33/38, down
around 27 points, according
to a trader. There were active
two-way flows with real money
selling and some hedge funds
bargain hunting.
Luckin suspended COO Jian
Liu and employees reporting
to him following initial
recommendations from a special
committee, which was appointed
to investigate issues in its
financial statements for the fiscal
year ended December 31 2019.
Earlier this year, short-seller
Muddy Waters shorted the stock,
citing a report alleging that
Luckin fabricated financial and
operating numbers from the
third quarter of 2019.
Moreover, Liu held positions
at CAR from 2008 to 2015 and
at affiliate UCAR from 2015 to
2018 before he joined Luckin,
while E&Y is the auditor for both
Luckin and CAR, according to a
note from Deutsche Bank.
According to Deutsche Bank,
CAR confirmed in a call that
it had Rmb2.7bn–Rmb2.8bn
of cash on hand at end-March
2020, which can be used to repay
Panda bonds puttable in April.
Plus, management said that CAR
maintains a good relationship
with banks and received a
Rmb500m new facility last week.
Deutsche Bank said it does
not see CAR as a high default
risk in 2020 if its “balance sheet
is real”.
A prolonged trading
suspension could trigger an
event of default on CAR’s
syndicated loans. CAR has two
US$100m facilities outstanding,
both three year loans arranged
by Bank of China (Hong Kong)
in June 2018 and in November
2019, according to Refinitiv LPC
data. International Financing Review Asia April 4 2020 5For daily news stories
visit http://www.ifre.comB 1 HZVLQGG