Luckin chief looks to limit scandal fallout Lu Zhengyao seeks to distance himself from his other companies after alleged fake sales found Luckin’s ambitions to surpass Starbucks as the biggest coffee chain in China won it the backing of some of the world’s biggest investors
The co-founder of China’s would-be Starbucks rival Luckin Coffee, Lu Zhengyao, is seeking to distance himself from his network of other companies to help them weather the fallout from a scandal at the beverage group. Like Luckin Coffee, which attracted investment from foreign companies such as BlackRock, Mr Lu’s other businesses — which include China Auto Rental, China’s largest online car rental company, and Ucar, a chauffeur-car service — count overseas companies such as Warburg Pincus among their investors. In an interview with the Financial Times, company executives said Mr Lu would consider stepping down as chairman of China Auto Rental as one of a number of measures aimed at convincing investors of the group’s independence from Luckin Coffee. “We believe that is something that he is considering but what the final decision is, we are unable to comment on that,” said Emily Paau, investor relations director at China Auto.
Song Yifan, chief executive of China Auto, said there was no equity or business relationship between the car rental company and Luckin Coffee. Shares in Hong-Kong listed China Auto Rental crashed more than 50 per cent last week after Luckin revealed that an internal investigation had found millions of dollars of sales were allegedly fabricated last year. Trading in the shares was suspended on Friday. Both China Auto Rental, which is listed as CAR in Hong Kong, and Luckin Coffee are chaired by Mr Lu, who also goes by the English name Charles. In a statement on Tuesday signed by Mr Lu, China Auto Rental said he “has not been involved in the group’s day-to-day management” since April 2016. Nigel Stevenson, an analyst at accounting investigation firm GMT Research, said China Auto Rental could still be “tainted” by its connection to Luckin even if Mr Lu’s daily involvement was limited: “Even in his role as non-executive chairman, he would still be involved on a fairly active basis”.
The efforts by China Auto Rental to reassure shareholders came after S&P Global cut the company’s credit rating from B plus to B minus. “Although [China Auto Rental] is a separately listed company with no direct ties to Luckin Coffee, its association with the company has caused investor concerns over its corporate governance” and hurt its access to capital markets, the rating agency said. Ms Paau said the company had held discussion with its banks this week and did not expect any acceleration of repayments. She noted that Warburg Pincus still had an 11 per cent stake in China Auto Rental, and added: “They want to protect the company”. Warburg Pincus declined to comment. Shares in China Auto Rental were down 10 per cent on Wednesday afternoon in Hong Kong, having resumed trading on Tuesday. Trading in Beijing-listed Ucar, in which Mr Lu is a significant shareholder, was halted on Tuesday. Luckin’s ambitions to surpass Starbucks as the biggest coffee chain in China won it the backing of some of the world’s biggest investors including BlackRock and Singapore’s sovereign wealth fund GIC, but the accounting scandal has cast a cloud over its future. Luckin has appointed a special committee to oversee the investigation. At the weekend, Mr Lu said that “regardless of the final findings of the independent committee, I will bear the responsibility that I ought to”.