Luckin Coffee seeks more of China market, launches equity deals worth $821 million

BEIJING/HONG KONG (Reuters) - Luckin Coffee Inc LK.O said it is expanding into vending machines that sell freshly brewed hot beverages and snacks, seeking even more of the China market after overtaking Starbucks Corp SBUX.O as the country's biggest coffee chain by number of stores.

FILE PHOTO: A cup of 'Luckin Coffee,' coffee is displayed during the company's IPO at the Nasdaq Market site in New York, U.S., May 17, 2019. REUTERS/Brendan McDermid

Luckin founder and CEO Qian Zhiya said the new strategy allowed it to be asset-light and nimble. “It allows us to get closer to consumers and we are not restricted by the license approvals,” she said at an event to launch the new business.

The three-year-old startup on Wednesday also launched a share placement and a convertible bond worth a combined $821 million, according to two term sheets seen by Reuters, at a time when global stocks fell as Iran fired rockets at U.S.-led forces in Iraq.

Nasdaq-listed Luckin is selling 12 million American depository shares (ADSs) including 4.8 million secondary ones from Chinese private equity firm Centurium Capital. Based on Luckin’s close price of $35.11 on Tuesday, the deal could raise about $421 million before any over-allotment option is exercised.

Centurium, an early backer of Luckin, is selling about 20% of its holdings and will remain the largest intuitional shareholder in the company after the deal.

Luckin is also raising another $400 million from a five-year convertible bond, carrying a coupon of between 0.5% and 1% with a conversion premium of between 27.5% and 32.5%, showed one of the term sheets. Both deals will be priced after the U.S. market closes on Thursday.

The company plans to use part of the proceeds to open more stores and for sales and marketing.

Growing at breakneck speed by offering cheap delivery, online ordering and big discounts, Luckin also said it now has just over 4,500 stores across China - achieving a goal it set one year ago and topping Starbucks which has 4,100.

Luckin showcased two vending machines at the event - one featuring a Swiss Schaerer coffee machine that can make a variety of hot and iced drinks, as well as one offering a range of snacks.

The startup, also backed by Singapore sovereign wealth fund GIC, went public last year and has a market value of $8.4 billion. Starbucks has a market value of $104 billion.

Luckin made a net loss attributable to shareholders of about 532 million yuan ($76 million) in the third quarter ended Sept. 30, compared with a 484.9 million yuan loss in the same period a year earlier. It has also said it is looking to expand overseas.

Reporting by Pei Li in Beijing, Julie Zhu in Hong Kong and Brenda Goh in Shanghai; Editing by Edwina Gibbs and Louise Heavens