UCAR to exit from China’s biggest car rental group after Luckin Coffee scandal infects stock value

Lu’s UCAR agrees to sell its remaining shares in Car Inc to Beijing Automotive Group, following a stake sale in April

Block sales follow incident at Luckin Coffee that ensnares investors in companies associated with the former billionaire

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Employees walk pass by a chain of Shenzhou Zuche, as Car Inc is known in mainland China. China's biggest car rental company's share price has tumbled by association with Luckin Coffee through their co-founder. Photo: EPA-EFE

Published: 2:49pm, 1 Jun 2020Updated: 9:15pm, 1 Jun 2020

Charles Lu Zhengyao, the former billionaire co-founder of scandal-hit Luckin Coffee, appears set to exit from China’s largest car rental firm after agreeing to sell his remaining interest in the company to Beijing Automotive Group.

UCAR, an investment unit controlled by Lu, plans to dispose of all its remaining 21.26 per cent stake in Hong Kong-listed Car Inc to Beijing Automotive for an undisclosed price, according to an exchange filing on Monday. The stake is worth about HK$999 million (US$129 million) based on the firm’s current market value.

Car Inc surged 24.4 per cent to close at HK$2.22 on Monday, after gaining as much as 29 per cent. Lu is the chairman and non-executive director of the car rental company. The shares recently traded at HK$2.12.

“Car rental is still a market with great potential to tap in China,” said Cao Hua, a partner at private equity firm Unity Asset Management. “It is understood that new investors are still interested in Car Inc’s business while its founder looks to exit.”

Charles Lu Zhengyao, in happier time during Luckin Coffee’s debut on Nasdaq in 2019. Photo: finance.china.com.cn

The divestment is a humbling experience for the executive, who has since apologised to investors ensnared by fabricated sales at the coffee chain touted as China’s Starbucks. Though unrelated, the scandal has not only hit both their stock prices and eroded trust in Chinese corporate governance, but also provoked a tougher response from stock exchange operator Nasdaq.

The “strategic cooperation” with Beijing Automotive is the second block by UCAR since the Luckin scandal came to light on April 1. UCAR on April 16 agreed to sell a 17.1 per cent stake in Car Inc to a Warburg Pincus unit in two tranches for HK$1.12 billion. Only the first tranche of 4.65 per cent at HK$2.30 each, was completed but a second portion at HK$3.40, was aborted.

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