Luckin's Chairman May Lose Assets to Lenders

The founder of Luckin may lose Haode Investments after defaulting on a $518 million loan; stock falls even further.

Author: CapitalWatch Staff   

Those who held on to the stock of Luckin Coffee Inc. (Nasdaq: LK) after it resumed trading this week must be regretting that now, as this morning it tanked more than 27%, to $1.47 per American depositary share.

The drop occurred on news that banks are attempting to liquidate certain assets owned by Charles Zhengyao Lu, the chairman of the Chinese coffee and tea giant, steeped in fraud and debt.

Banks that have lent Luckin $518 million hope to grab Lu's private company, Haode Investments Co., according to a British Virgin Islands news outlet. Credit Suisse is acting as the security agent for the lending banks, which also include Goldman Sachs, Morgan Stanley, Barclays, China International Capital Corp. and Haitong International Securities.

Luckin's stock resumed trading this week after being frozen at $4.39 per share since April 7, when the company investigated into 2.2 billion yuan ($310 million) in overstated sales. However, now Luckin is facing a potential delisting from the Nasdaq Capital Market, though it hopes to appeal the decision, which the exchange said was based on "public interest concerns."

Lu, a serial entrepreneur and angel investor, has issued a public apology on his WeChat account, saying, "I have been in deep pain and guilt over the past month. I again apologize to all the investors, staff and clients of Luckin for the terrible impact of the incident."

Lu also said he "never intended to defraud investors and only wanted to build good companies and create value for society," as cited by the South China Morning Post.

Now, the coffee chain is expected to start closing some stores it fought so furiously to open in its goal to outnumber Starbucks (Nasdaq: SBUX) in China. Luckin's questionable growth model has boomeranged with losses and the company is now hit with mounting legal expenses and is losing access to investment capital. Already in April, Lu and then-CEO Jenny Zhiya Qian had to hand over shares in Luckin to lenders; now banks are going after the chairman's other assets.

The court hearing on Haode liquidation is set for June 8 on the island of Tortola.

The decision on Luckin's delisting is expected within two months, according to Reuters. Since January, LK shares tanked from trading above $50 per ADS.

Lu also founded China's largest car rental company, Car Inc. (HKEX: 0699). Its stock in Hong Kong has fallen significantly, from HK$4.30 in early April to today's HK$1.85. On Friday, it ended 5% lower on the day.

YOU MAY LIKE