Luckin Coffee sticks by chairman despite scandal over fake sales

Embattled Luckin Coffee chairman Charles Zhengyao Lu. (Reuters)
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Updated 04 July 2020

Luckin Coffee sticks by chairman despite scandal over fake sales

  • Luckin suspended trading on June 29 and will be delisted from the Nasdaq by the end of next week.

BEIJING: Embattled coffee chain Luckin Coffee has decided against ousting its founder and chairman, despite an internal investigation concluding that last year’s revenue included millions of dollars in fake sales.

The massive financial scandal has already cost the company two top executives, caused shares to plummet more than 70 percent and put its billionaire founder Charles Zhengyao Lu in the line of fire — and will see it delisted from the Nasdaq in New York.

But the directors decided Lu would remain chairman, the company said, a day after an internal probe found its 2019 net revenue was inflated by 2.12 billion yuan ($311 million).

A proposal to oust Lu failed to get the necessary two-thirds majority vote on Thursday, Luckin said in a filing to the US Securities and Exchange Commission.

The company’s shares went into freefall after it revealed in April that a top officer may have faked billions of yuan worth of sales.

The chain has since fired CEO Jenny Zhiya Qian and chief operating officer Liu Jian.

On Wednesday, Luckin said in a separate filing that a special committee investigation had found the fabrication of sales traced back as early as April last year.

Apart from the inflated revenue, Luckin’s 2019 costs and expenses were also found to be inflated by 1.34 billion yuan.

The committee’s recommendations — which led to Qian and Liu’s removals — brought about a proposal to oust Lu as well.

While it eventually failed to garner enough support to remove Lu, the board earlier announced its decision to fire another 12 employees involved in the fake transactions.

Luckin suspended trading on June 29 and will be delisted from the Nasdaq by the end of next week, having been asked to do so by the exchange.

The chain launched in 2017 and raised $561 million in its initial public offering less than two years later, with plans to dethrone Starbucks in China via an aggressive growth strategy, enticing customers with an app-based purchasing model that prioritized takeaway and delivery options, and generous mobile coupons.

By the end of 2019, the Xiamen-headquartered firm’s 4,500 outlets in mainland China had already surpassed Starbucks’ local footprint, and investors touted the company’s potential to go global. 

The scandal has dealt a blow to US-listed Chinese firms, who find themselves under increased scrutiny as tensions flare between the two superpowers.

Lu must still face a vote of confidence by shareholders on Sunday at an extraordinary general meeting.


Ant Group to raise up to $34.4bn in world’s biggest IPO

Updated 26 October 2020

Ant Group to raise up to $34.4bn in world’s biggest IPO

  • The deal would value Ant at more than $313 billion before a so-called greenshoe option for a 15 percent overallotment of shares

HONG KONG: Chinese financial technology giant Ant Group has set terms for a dual listing aimed at raising up to $34.4 billion from the world’s largest stock market debut, with investors scrambling for a piece of the fast-growing company.

The deal would value Ant at more than $313 billion before a so-called greenshoe option for a 15 percent overallotment of shares. At that valuation, Ant is worth more than Industrial and Commercial Bank of China, the world’s biggest bank by assets.

The looming market debut, however, is clouded by concerns over growing regulatory scrutiny of Ant’s lucrative consumer credit business as well as a US State Department proposal to add the fintech group to a trade blacklist.

Global investors, however, have largely shrugged off those concerns as they bet on continued rapid growth of a group that also operates China’s biggest mobile payments platform and distributes wealth management and insurance products.

Alibaba interest

It has earmarked 80 percent of its domestic offering to 29 strategic investors that will be locked up for at least one year and will also include a wholly owned unit of technology giant Alibaba and China’s National Council for Social Security Fund.

While the Alibaba unit has agreed to purchase 44 percent of the Shanghai float, large Chinese insurers and mutual funds will also have shares allocated via the strategic investor route, Monday’s filing showed.

Referring to Ant’s float as a “miracle,” the billionaire founder of Alibaba, Jack Ma, on Saturday told a conference in Shanghai that it is the first time the pricing for such a big listing has been determined outside New York.

Headquartered in the Chinese city of Hangzhou, Ant is aiming to raise about $17.2 billion in Shanghai and roughly the same in Hong Kong, Ant said in filings to the two exchanges late on Monday.