Starbucks’ Chinese Rival Luckin Coffee Nets $561 million in U.S. IPO

Luckin Coffee, a Chinese startup that is out to challenge Starbucks Corp, has completed its initial public offering (IPO) in the U.S. and reportedly sold shares in excess of what it had anticipated.

The company raised $561 million in the IPO, selling 33 million American depository shares at $17 per share. The initial target was to sell 30 million ADS at $17 per share.

Last week, the company noted in a filing with the U.S. Securities and Exchange Commission (SEC) that one ADS would represent eight class A shares.

The pricing estimates Luckin’s worth at $4.2 billion with backing from investors like GIC Pte Ltd, the sovereign wealth fund of Singapore and U.S.-based asset manager BlackRock Inc.

Luckin has acquired the trademark rights and will debut on Friday on the Nasdaq stock exchange platform using the symbol “LK.”

Financial markets have been unstable due to the on-going U.S- China trade wars leading to a hike of tariffs on each other’s goods. According to Refinitiv data, the Chinese firms have been able to gain $619 million in the U.S. IPOs in 2019. This shows a sharp downfall from 2017’s results, $3.7 billion of the same period.

The coffee firm has ambitions of replacing Starbucks, banking that on its 2,370 operational stores in China. There are plans for further expansion, which will see it put up another 2500 stores.

Luckin was established in 2017 and it is rapidly growing as Chief Executive Qian Zhiya notes that the chain intends to use the profit from IPO to expand its store network. The IPO will also fund marketing, research and development and also to tap more customers.

Coffee consumption is predicted to increase in China to 15.5 billion cups in the next four years. In 2018, the growth was estimated to be 8.7 billion as Luckin reported. The company has taken the expected rise as a challenge to also grow.

Luckin is likely to continue experiencing losses in days to come. In 2018, its filing showed that it lost $475.4 million to shareholders and $125.27 million in total revenue. Its net loss for the period between January and March 2019 was $85.3.