Tycoon behind Luckin loses $1B after accounting scandal
The accounting scandal at Starbucks Corp.’s biggest competitor in China triggered a rout in shares linked to the company’s chairman, wiping out most of his wealth and knocking the tycoon out of the ranks of China’s billionaires.
Luckin Coffee Inc.‘s Lu Zhengyao, a former civil servant who built a name for himself as a successful entrepreneur involved in everything from ride-hailing to coffee shops, lost about $1 billion in the past day, according to data compiled by Bloomberg. The 60 percent drop in Lu’s fortune came after Luckin on Thursday disclosed it is investigating reports that senior executives and employees fabricated transactions. Lu wasn’t accused of wrongdoing.
Lu Zhengyao speaks during the company's IPO at the Nasdaq MarketSite in New York, on May 17, 2019.
It’s a stunning reversal of fortune for a man who began his career working for the city of Shijiazhuang in northern China before he aggressively built up a business empire over the past two decades. Lu, 50, became a billionaire after his coffee chain quickly gained popularity by offering java for as little as $1 a cup, a fraction of what Starbucks sells its drinks at.
Before Luckin, Lu started a vehicle insurance, rescue and maintenance business modeled after AAA of the U.S. In 2007, Lu founded a company called Car Inc. that would become Asia’s largest car-rental company by dangling rates as low as 50 yuan ($7) a day. The company sold shares in an initial public offering in Hong Kong in 2014 after an attempt at a U.S. IPO failed.
A year later, Car Inc. took on Uber Technologies Inc. in ride hailing, though with a twist. Instead of having drivers who use their own cars, Lu employed chauffeurs and went for a higher-end offering. It turned out to be a right choice, with the Chinese government later stepping up regulations for the industry. Car Inc.’s taxi-like service survived the clampdown relatively unscathed.
Lu has also added a piece of car manufacturing into his holdings by investing into Borgward, a German car brand that China’s Beiqi Foton Motor Co. was attempting to revive.
In 2018, Lu and several of Car Inc.’s core executives set up Luckin to tap Chinese consumers’ increasing appetite for coffee. While undercutting rivals’ prices, Luckin featured celebrities such as actress Tang Wei in ad campaigns. One of the Car Inc. executives that followed Lu to the coffee business was Jian Liu, whom Luckin on Thursday identified as having engaged in misconduct as the chain’s operating chief.
The warning about the accounting irregularities pushed Luckin’s shares down 76 percent on Thursday in New York, erasing $840 million off the value of Lu’s stake in the company. Car Inc. tumbled 54 percent the following day in Hong Kong. Though he doesn’t directly own shares in Car Inc., Lu controls parent UCar Inc., which fell 22 percent in the lightly traded Neeq market.
Lu, born in 1969 in the southern Fujian province famous for its business heritage, didn’t respond to calls made to his mobile phone Friday. He published a brief posting on the WeChat online messaging service though.
“We should be full of vitality, especially today,” Lu wrote. “Let’s cheer up.”
— With assistance by Ying Tian, Pei Yi Mak and Venus Feng