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GIC-backed Luckin Coffee seeks to raise up to US$510m in US IPO

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Luckin Coffee Inc, the ambitious startup that is challenging Starbucks Corp in the race to dominate China's growing coffee culture, is seeking to raise as much as US$510 million in its US initial public offering.

[SAN FRANCISCO] Luckin Coffee Inc, the ambitious startup that is challenging Starbucks Corp in the race to dominate China's growing coffee culture, is seeking to raise as much as US$510 million in its US initial public offering.

The Xiamen-based company said in a filing on Monday that it's planning to sell 30 million American depositary shares for US$15 to US$17 each. At that range, it would be the sixth largest of the 53 IPOs on US exchanges so far this year, according to data compiled by Bloomberg. It would also top the company's earlier plan for a US$300 million share sale described previously by people familiar with the matter.

Including a private placement for about US$50 million with Louis Dreyfus Co, Luckin would have a value of as much as US$4 billion at US$17 a share based on the shares to be outstanding after the listing, according to the filing.

Luckin is spending millions of dollars a year opening outlets to unseat Starbucks as China's top coffee company. Since its inception in June 2017, Luckin has quickly expanded into 2,370 stores in 28 cities, with backing from investors including Singapore sovereign wealth fund GIC and China International Capital Corp. By the end of this year, Luckin aims to become the largest coffee network in China in terms of number of stores.

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It faces an uphill battle against Starbucks, which entered China 20 years ago and dominates with more than 50 per cent of the market last year, according to Euromonitor. Luckin held only a 2.1 per cent share in 2018. Starbucks has more than 3,700 outlets in the country and is also expanding at break-neck speed, opening a new store roughly every 15 hours. It's aiming to have 6,000 sites in China by 2023.

China may become an increasingly important market for coffee retailers due to the country's low per-capita consumption of the beverage and rising middle-class affluence, Bloomberg Intelligence analysts wrote in January. Coffee consumption is estimated to grow by about 3 per cent a year through 2023, according to Euromonitor.

Luckin, with a focus on convenience and affordability, is seeking to lure urban office workers who don't need the big plush spaces offered by Starbucks. Many customers are initially attracted to the coffee chain by its free vouchers, and the company plans to keep investing heavily in discounts and deals.

TENCENT PARTNERSHIP

Luckin's outlets are cashless and designed for fast pick-up as well as delivery, with an app that rushes out deliveries in about 18 minutes. The company has a partnership with internet giant Tencent Holdings. Starbucks only launched delivery in August, under a partnership with Alibaba Group Holding.

Chasing the entrenched rival has been costly. Luckin said it's burning through US$130 million a year and may continue to see losses in the future. The company reported a net loss of US$241 million for 2018, on total revenue of US$125 million. It lost US$82 million on revenue of US$71 million during the first quarter.

The offering is being led by Credit Suisse Group AG, Morgan Stanley, CICC and Haitong International. Luckin is seeking to trade on the Nasdaq Global Select Market under the symbol LK.

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