Luckin Coffee Fraud Scandal Follow-up: Luckin Coffee Announces Completion of Financing Milestone with Bright Future Prospects

According to Zhitong Finance, on June 15 Luckin Coffee (OTC: LKNCY) announced that it had completed the "financing milestone" under the Restructuring Support Agreement (RSA) it signed with holders of the company's $460 million convertible preferred bonds due in 2025.

Under the terms of the Restructuring Support Agreement, Luckin Coffee was required to complete the initiation of formal Chinese regulatory approval procedures by June 14, 2021, and to move funds overseas through the planned capital reduction in an amount sufficient to satisfy the cash consideration.

Luckin Coffee has now completed the approval procedures of the Chinese regulatory authorities, including obtaining the relevant approval from China's State Administration of Foreign Exchange (SAFE) through a designated Chinese foreign exchange handling bank, in order to transfer the required funds outside China through the planned capital reduction. This satisfied the financing milestone set out in the Restructuring Support Agreement. Under that agreement, bondholders collectively hold or control approximately 94% of the total principal amount of the existing bonds.

Luckin Coffee's Development Timeline

According to the development timeline published on Baidu Baike:

In October 2017, the first Luckin Coffee store opened.

On March 28, 2018, Luckin Coffee (China) Co., Ltd. was established.

On July 11, 2018, Luckin Coffee announced the completion of a $200 million Series A financing, reaching a post-investment valuation of $1 billion.

On December 12, 2018, Luckin Coffee announced the completion of a $200 million Series B financing, with a valuation of $2.2 billion.

On April 22, 2019, Luckin Coffee filed a prospectus with the U.S. Securities and Exchange Commission (SEC), planning to raise up to $100 million and seeking to list on NASDAQ under the ticker "LK."

On May 16, 2019, the IPO issue price was set, and the company listed on May 17.

The Fraud Scandal and Recovery

Luckin Coffee was once a source of pride in China, until the fraud revelation of 2020. On April 2, 2020, Luckin Coffee admitted to fabricated transactions totaling 2.2 billion RMB, sending its share price down 80% with trading halted several times during the day.

On April 5, Luckin Coffee issued an apology on its official Weibo account regarding the financial fraud.

In December 2020, Luckin Coffee was charged with fraud by the U.S. Securities and Exchange Commission (SEC) and agreed to pay $180 million to settle.

In February 2021, Luckin Coffee filed for bankruptcy protection in the United States.

After a series of measures, including replacing the management team and accelerating product launches, Luckin Coffee has reached a broadly stable position. That it can still keep its stores operating normally is tied to the rise of China's coffee consumption market. According to a June 11 report by Canbaodian, capital remains relatively optimistic about the coffee industry. Information from Canbaodian's "2020-2021 China Industry Development Research Report" shows that in 2020 at least 10 brands found favor with capital, including Yongpu Coffee, Sandianban and Yingji Coffee.

Renewed Investor Interest

Financing events for coffee brands have also been frequent this year. On January 15, M Stand completed a 100 million RMB Series A financing; on June 11, boutique coffee brand Yongpu Coffee completed a Series A+ round of more than 50 million RMB, with investors including Zhongyuan Capital and Maixing Capital; on June 16, coffee chain brand Manner Coffee completed a Series B+ round of several hundred million dollars, with ByteDance as the investor.

Luckin Coffee has once again found favor with capital by completing its "financing milestone." Chinese food industry analyst Zhu Danpeng observed that Luckin Coffee should not face too much litigation in the short term, since otherwise capital would be unwilling to step in. Continued investment in Luckin Coffee also indirectly shows that capital is optimistic about its development.

FrontStreet Coffee Recommendation

If the resilience of the coffee business makes you want to explore specialty beans yourself, the easiest route is to start with a few famous origins. From Ethiopia, FrontStreet Coffee's washed Yirgacheffe Gedingding Cooperative is a classic first cup, with jasmine, lemon acidity and berry notes, and from the same country the naturally processed Sidamo Huakui pushes tropical fruit, berry and honey sweetness to the front.

Brazil is the world's largest producer, and FrontStreet Coffee's Cerrado Red Bourbon is a reliable everyday bean: creamy peanut, cocoa and caramel, soft acidity and a smooth, balanced body. Its Queen Estate Yellow Bourbon adds a sugarcane-like sweetness with fruit and chocolate, and both are easy to brew as pour-over or espresso.

For a fuller, low-acid cup, FrontStreet Coffee's PWN Golden Mandheling from Sumatra uses the wet-hulled process and a medium-dark roast to give herbal, dark chocolate and caramel notes with a thick body. If you prefer something softer and more balanced, FrontStreet Coffee's washed Colombia Huila is medium-dark roasted, with dark chocolate, nuts and a rounded, mellow mouthfeel that suits both pour-over and espresso.