Luckin, a Starbucks rival in China, rises in US stock debut

Men check their mobile phones outside a Luckin Coffee store in Beijing China

Chinese Starbucks challenger Luckin Coffee Inc. made a strong debut on Wall Street Friday as its shares jumped almost 50% when trading started after the expanded initial public offering raised $561 million.

In the biggest USA float by a Chinese company this year, Luckin Coffee sold 33 million American depository shares (ADS), more than the 30 million it originally said it would sell, at US$17 each, the report said.

Before IPO opening, Luckin Coffee was valued at 2.9 billion dollars, eventually raising 571.2 billion dollars through IPO sale. Daniela Wei reports on "Bloomberg Daybreak: Asia".

Luckin is expected to float on the Nasdaq Global Select Market under the ticker "LK".

The 22-month-old company has achieved rapid growth through building out physical stores, launching widespread marketing campaigns and offering generous subsidies.

The brand is banking on increased coffee consumption in China, expected to rise to 15.5 billion cups by 2023 from 8.7 billion past year, according to a report cited by Luckin in its prospectus.

On Friday, ahead of Luckin Coffee's debut on the Nasdaq, the startup's CFO Reinout Schakel said in a CNBC interview that, despite its limited track record, Luckin's unique business model would set it apart from established coffee chains like Starbucks. Coffee consumption is estimated to grow by about 3% a year through 2023, according to Euromonitor.

Luckin's caffeine-fuelled expansion has been funded by investors including Centurium Capital, a private equity fund founded by the former China head of Warburg Pincus, and Joy Capital. That suggests heavy demand for the company's shares. The company has a partnership with internet giant Tencent Holdings Ltd. Starbucks only launched delivery in August, under a partnership with Alibaba Group Holding Ltd.

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.

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 expansion and high marketing costs have seen its losses balloon in the 18 months it has been in business, racking up a loss of US$241 million past year on US$125 million in sales. It lost US$82 million on revenue of US$71 million during the first quarter.

Underwriting Luckin's IPO are Credit Suisse, Morgan Stanley, CICC, and Haitong International.

-With assistance from Crystal Tse.

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