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The logo of Chinese coffee chain Luckin Coffee is pictured on the window of one of its shop in Beijing. Photo: Simon Song

Scandal-hit Luckin Coffee’s chairman Charles Lu Zhengyao survives move to oust him

  • Proposal to oust chairman fails to get two-thirds voting majority at a board meeting
  • Lu exits interests in Hong Kong-listed Car Inc. as state-owned SAIC takes over

Charles Lu Zhengyao, the former billionaire co-founder of Luckin Coffee, survived an effort to oust him as chairman after directors failed to get enough votes. It was the latest surprising turn of events for the scandal-hit company once dubbed “the Starbucks of China”.

Meanwhile, Lu is set to make an exit from Car Inc., China’s largest car rental firm that he also founded, after SAIC Motor, China’s largest carmaker, agreed to buy a 29 per cent stake in the firm from a company he controls and an investment firm.

A proposal to remove Lu from his position at Luckin put forward by a majority of the company’s directors failed to garner the necessary two-thirds votes during a board meeting on Thursday, Luckin said in a statement.

“As a result, Mr. Charles Zhengyao Lu will remain a director and the chairman of the board,” the company said.

The voting result came one day after an internal investigation concluded the coffee chain’s revenue in 2019 was inflated by 2.12 billion yuan (US$300 million), and the fabrication of transactions began in as early as April last year.

Lu Zhengyao at its Nasdaq listing. Photo: Weibo

enny Qian Zhiya, Luckin’s former chief executive officer, and Liu Jian, the former chief operating officer, participated in the fabrication along with a number of employees reporting to them, the company said in the statement. Attempts to reach them for comment were unsuccessful.

Chinese and US regulators are investigating the company over the alleged fraud.

Qian and Liu were fired in May by the board based on the committee’s recommendation, as well as 12 other employees. Another 15 employees have been disciplined. The special committee recommended that Lu be terminated from his chairmanship.

In China’s battle for coffee lovers, Luckin was known for the breakneck speed at which it expanded. It took the company just 19 months from its founding to go public on the Nasdaq stock exchange in New York in May 2019.

Since the accounting scandal broke in April, however, the Xiamen-based start-up has drawn the ire from the global investment community as well as Chinese and US regulators, as lawmakers in Washington move closer to a legislation that could bar Chinese firms from being listed in the US.

Shares of Luckin have been suspended since Monday after plunging by 95 per cent in value since January, as the company prepares to be delisted from the Nasdaq.

Luckin’s over 4,000 stores across China remain in normal operation, according to a recent statement by the company.

The scandal has also prompted a shakeout at Hong Kong-listed Car Inc., which was founded by Lu in 2007.

A subsidiary of the state-owned SAIC Motor will pay HK$1.9 billion to buy a 29 per cent stake in Car Inc. from UCAR Inc., a ride-hailing company controlled by Lu and US private equity firm Warburg Pincus, according to a filing to the Hong Kong stock exchange on Thursday night.

The purchase price, at HK$3.10 per share, represented a 23 per cent premium to Car Inc.’s closing price of HK$2.53 on Thursday.

SAIC Motor will become the controlling shareholder of Car Inc after the transaction is completed, and UCAR will shed all of its 21 per cent stake in the company.

Shares of Car Inc jumped 9.1 per cent to HK$2.76 in morning trading on Friday.

This article appeared in the South China Morning Post print edition as: Scandal-hit Luckin Coffee’s board fails to oust founder