March 12, 2019 / 10:25 AM / in 2 months

Exclusive: Luckin Coffee chief taps banks for $200 million loan in exchange for IPO role: sources

HONG KONG (Reuters) - Chinese startup Luckin Coffee’s chairman is seeking a loan of at least $200 million from banks including Goldman Sachs and Morgan Stanley under a deal that would award them mandates in the firm’s planned U.S. IPO, people with knowledge of the matter said.

The coffee chain, which aims to overtake Starbucks in China this year, has already mandated Credit Suisse to lead the initial public offering (IPO), which could take place as soon as May and give it a valuation of about $3 billion, sources told Reuters last month. Morgan Stanley and Goldman are also advising Luckin on the preparatory work for the IPO.

Lu Zhengyao, also known as Charles Lu, Luckin’s non-executive chairman and angel investor, is asking to borrow the sum backed primarily by his Luckin shares, the people said.

While it is not uncommon for Chinese companies to raise loans from banks hoping for a mandate on an IPO, it is rare for executives or shareholders to request such personal financing, several people who have worked on IPOs told Reuters.    

The funding deal for Lu, which has been woven into the banks’ IPO mandate agreement, shows how Chinese companies or their investors have become more demanding of banks seeking a role on a high-profile IPO such as Luckin’s.

Credit Suisse has already agreed to provide part of the $200 million, Lu told other banks seeking a role in the IPO, according to two sources familiar with the discussions. Goldman Sachs and Morgan Stanley are still negotiating loan terms, said one of the sources.

A fourth bank decided not to provide the financing due to a lack of clarity on Lu’s plans for the proceeds and did not therefore expect to be involved in the IPO, said one of the people.

If Luckin fails to go public, the loan collateral will be replaced by Lu’s shares in Hong Kong-listed car rental company Car Inc, said the two sources. Lu, who is also chairman of Car Inc, owns about 33 percent of Car Inc shares, according to Eikon Refinitiv data.

Credit Suisse, Goldman and Morgan Stanley declined to comment.

Luckin’s spokeswoman said she was not aware of the situation when contacted by Reuters. Lu did not answer calls to his mobile phone or respond to a text message. The sources declined to be named as the information is confidential.

FAST ‘UNICORN’

Beijing-based Luckin was co-founded by Chief Executive Qian Zhiya, the former chief operating officer of Car Inc, and another two senior executives. Lu is heavily involved in Luckin’s strategy and fundraising plans, separate sources close to the company have told Reuters.

The firm officially launched its business only in January last year and in July raised $200 million in its maiden funding round that valued it at $1 billion, making it one of the fastest-ever firms to make the ‘unicorn’ milestone.

In December, another $200 million fundraising valued the company at $2.2 billion. Investors to date have included Singapore sovereign wealth fund GIC Pte Ltd and Chinese private equity firm Centurium Capital.

Lu became Luckin’s non-executive chairman after the July funding round, Qian told reporters in the same month.

The loss-making firm has been expanding at breakneck speed with over 2,000 cafes opened and plans to open 2,500 this year - displacing Starbucks as China’s largest coffee chain in the process.

Reporting by Julie Zhu and Kane Wu; Additional reporting by Pei Li in Beijing; Editing by Jennifer Hughes and Muralikumar Anantharaman

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