China’s Starbucks Rival Luckin Snags $778 Million in New Funds

(Bloomberg) -- Luckin Coffee Inc., the Chinese challenger to Starbucks Corp., has raised a combined $778 million from an additional share sale and a convertible bond offering, topping the amount fetched in its initial public offering last year, people with knowledge of the matter said.

The coffee chain upstart, which opened its first store in Beijing in 2017, sold $378 million in new shares at $42 each and a $400 million five-year convertible, the people said, who aren’t authorized to speak publicly and asked not to be identified. The fundraising came less than a year after it raised $645 million in a U.S. listing in May 2019.

The cash will help fund its breakneck pace of expansion in China, where it’s seeking to upend Starbucks’s dominance. The company will also use the money to push for international expansion and an “unmanned retail initiative.” The total number of Luckin Coffee stores at the end of September was 3,680, representing a more than two-fold increase from a year earlier.

Chinese firms listed overseas -- and particularly in the U.S. -- have been raising additional funds through follow-on share sales or convertibles at an unprecedented pace as many of them need to fund their high growth. NIO Inc., iQIYI Inc., Pinduoduo Inc. and HUYA Inc. all returned to equity markets for sizable offerings within a year of listing.

In total, Chinese firms that went public in the U.S. in 2018 raised $4.3 billion selling additional shares and convertible bonds within their first year of trading, according to data compiled by Bloomberg. Convertible bonds made up more than half of that amount, the data show.

Luckin Coffee, one of the few U.S. listings by a Chinese firm to have performed well last year, was well placed to tap the market. Its share price has almost tripled since the float, making it the best performer among last year’s cohort, data compiled by Bloomberg show. Since the announcement of the convertible bond and share sale on Tuesday evening U.S. time, Luckin Coffee’s stock price has risen a further 26%.

In a sign of strong demand for its latest offering, the number of shares offered was increased by 1.8 million, the people said. The convertible bond was priced in the middle of the marketed coupon range of 0.5% and 1%, with a conversion premium of 30%.

Shareholder Centurium Capital also sold 4.8 million shares this week, raising $202 million.

©2020 Bloomberg L.P.

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