Luckin Stock Drops Further As Lenders Seek To Seize 76.4M Shares For Defaulted Loan

The shares of Luckin Coffee Inc. LK dropped another 18% lower on Monday as Goldman Sachs Group Inc. GS sought enforcement action against an entity controlled by the company's chairman Charles Zhengyao Lu.

What Happened

The bank, acting as a "disposal agent" on behalf of a host of lenders, said Luckin investor Haode Investment Inc., defaulted on a $518 million margin loan facility.

According to Goldman, about 515.3 million Class B and 95.4 million Class A ordinary shares were pledged to secure the loan.

"In connection with the exercise of their rights under the [facility,] the [lenders] have commenced the process of enforcement against the collateral in order to satisfy the [borrower's] obligations under the [facility,] including the conversion of Class B ordinary shares of the Company into American Depositary Shares (‘ADSs') of the Company," the bank said in a statement.

Goldman said the lenders are planning to sell about 76.4 ADSs to recover the loan. Lu's voting interest in Luckin won't reduce, even if all the shares pledged under the facility are sold, the bank noted, but CEO Zhiya Qian's voting interest would "decrease significantly."

Why It Matters

The move follows Luckin's disclosure last week that chief operating officer Jian Liu fabricated sales numbers for the financial year 2019. Luckin shares have dropped more than 83% since last Thursday, and the Chinese securities regulator has said it is investigating the coffee chain company.

The Beijing-based startup has been a major competitor to Starbucks Corporation SBUX in China, it operates more outlets in the country than the Seattle-based global coffee giant.

Price Action

Luckin Coffee shares closed 18.4% lower at $4.39 on Monday. The shares traded slightly higher at $4.48 in the after-hours session.

Photo Credit: Courtesy of Luckin Coffee Instagram.