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A Luckin Coffee outlet located at Central Emporium in downtown Nanjing, Jiangsu Province. The scene seems to attest that there is good reason the chain has thrived in the Chinese market and drawn investment from an Abu Dhabi sovereign wealth fund. / Yicai

An Abu Dhabi sovereign wealth fund of the United Arab Emirates (UAE) has decided to make a strategic investment in Luckin Coffee, once a faltering enterprise and now one of China's largest coffee chains. The total value of the transaction is reported to be approximately $1 billion (about 1.341 trillion won).

According to a report on the 10th by Chinese financial news outlet Yicai, Mubadala Investment Company, an Abu Dhabi sovereign wealth fund, announced on that day that it had signed an agreement to make a strategic minority investment in Luckin Coffee.

Under the agreement, the investment will be carried out jointly by Mubadala and Centurium Capital, a Chinese private equity firm that is the controlling shareholder of Luckin Coffee. While the investment is substantial at approximately $1 billion, specific shareholding ratios and investment terms were not disclosed. In this regard, Mubadala cited the continuous expansion of the coffee market in China—driven not only by an increasing number of daily coffee drinkers but also by rising consumption frequency—as the background for its investment.

According to Beijing sources well-versed in the food service industry on the 10th, Luckin Coffee, founded in 2017, has a very short history. Yet it is now counted among China's flagship coffee chains. There was good reason for the sensation it created upon listing on the U.S. Nasdaq in 2019. Immediately following its listing, however, fraudulent accounting practices were uncovered, leading to the misfortune of being delisted the following year. Rumors subsequently swirled that the company was on the brink of ruin.

Yet, thanks to an initially favorable brand image and the support of an enthusiastic and loyal customer base, the company staged a comeback shortly thereafter. Today, it is thriving, operating more than 36,000 stores worldwide as of late June this year. The cumulative number of transacting customers is estimated to reach as many as 500 million. Mubadala's willing investment of $1 billion was certainly not without good cause. Luckin Coffee currently trades on the U.S. over-the-counter (OTC) market. While re-entering the Nasdaq may be impossible due to fatal vulnerabilities, it is safe to affirm that significant activity in the OTC market is anticipated going forward.

According to sources, Mubadala is widely known as a sovereign wealth fund owned by the government of Abu Dhabi. It is also well-known for embarking on full-scale investments in China in 2015 by establishing a joint investment fund with China's State Administration of Foreign Exchange (SAFE) and China Development Bank Capital (CDBC). Its assets under management were estimated at around $385 billion as of late last year. In this light, the $1 billion investment in Luckin Coffee can well be seen as a warm-up for full-scale cooperation.

                                                                                                           Hong Soon-do