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Luckin Coffee gets a boost from its fans in China despite alleged sales fraud

Luckin Coffee

MILAN – Luckin Coffee Chairman Charles Zhengyao Lu and Chief Executive Jenny Zhiya Qian have handed over shares in the Chinese coffee chain to lenders after a company controlled by Lu’s family defaulted on a US$518 margin loan, one of the banks said on Monday.

The default comes after Luckin said last week that much of its 2019 sales were fabricated, sending its shares plunging as much as 82per cent in U.S. trading and sparking an investigation by China’s securities regulator, reports Channel NewsAsia.

The company has allegedly fabricated almost half of its sales. And The stock has plunged over 80% from its 52-week highs to just $4.40 before being halted on the NASDAQ.

Goldman on Monday said it was seizing the shares as collateral on the margin loan facility to Luckin chairman Lu Zhengyao. It would then convert them into American depositary shares and sell them to recoup losses on behalf of a syndicate of lenders. The syndicate of lenders also included Credit Suisse, Morgan Stanley and Barclays, two people familiar with the situation said.

Some 515,355,752 class B shares and 95,445,000 class A shares of Luckin had been pledged to secure the loan, including shares additionally pledged by the family trust of Qian, Goldman Sachs Group Inc , one of the banks on the loan, said in a note to clients on Monday proposing a sale of the shares.

Luckin declined to comment.

It appears that the scandal hasn’t dampened Chinese customers’ love for the company, seen by many as a home-grown challenger that can rival the world’s biggest coffee chain.

In an online survey initiated by news portal Sina Tech, more than half of the 80,000 or so respondents chose the option “I accept Luckin’s apology, it is still a national champion as long as it corrects its mistakes.”

Meanwhile, the company is showing more than 6,500 locations on its app’s store locator, up from the 4,500 or so it reported just a few months ago, and over 2,000 more locations than Starbucks reports in China.

Meanwhile, Luckin shops are reportedly being flooded with orders after a free-coffee coupon made its way around and as locals showed their support for the chain.

As a result, the chain has picked up 65,000 new followers on Chinese social network Weibo.