China’s Luckin Coffee Seeks To Raise $586.5 Million In IPO

Luckin Coffee
Men check their mobile phones outside a Luckin Coffee store in Beijing, China July 17, 2018. (Photo: REUTERS/Jason Lee)

Starbucks' Chinese Challenger, Luckin Coffee, is filling with the United States Securities and Exchange on Monday to fulfill its plan to accumulate up to $586.5 million.

The company announced that it is expecting to offer 34.5 million American depository shares (ADS) that are priced between $15 and $17 per ADS in an initial public offering. The company will represent each ad with eight Class A shares.

Luckin Coffee currently owns 2,370 stores in 28 cities in China. it plans to open additional 2,500 outlets this year. The Chinese company plans to surpass Starbucks as the largest coffee chain in China. the company uses a mobile app a network of outlets that have few seats that don't accept cash and are mostly located in high-traffic areas with high demand for coffee.

China's consumption of coffee doubled from 4.4 billion cups in 2013 to 8.7 billion and it is projected to increase further to 15.5 billion cups by 2023.

The company generated $71.3 million in net revenues in the first quarter of 2019. It accumulated a net loss of $82.2 million in that same period due to heavy spending in expansion as it opens new outlets which focus mostly on digital and delivery orders.

Luckin also offered other products aside from coffee. The company now offers other beverages including grapefruit cheese jasmine tea and Sichuan cold noodles with pulled chicken through its app. The company was founded in June 2017. The newly emerged company warned that it may continue with its win and loss trend in the foreseeable future.

According to the filing, the company recorded a net loss to shareholders of $475.4 million and total revenue of $125.27 million. In the first quarter, the company posted a net loss of $85.3 million. The coffee company was founded by Chief Executive Qian Zhiya and two other senior executives. It is backed by GIC Pte Ltd, Singapore's sovereign wealth fund. Mr. Zhiya is the former chief operating officer of car rental firm Car.

The investors of the company included the United States money manager Black Rock and Chinese investment firms Centurium Capital and Joy Capital. Luckin Coffee plans to join Nasdaq list under the symbol "LK".

The IPO will increase the valuation of the company to almost $4 billion which is a shocking valuation for a company that only existed for a couple of years. Luckin shocked the coffee industry in its fast rise to the rank of the second largest coffee chain in China for a short period of time.

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