Warburg Pincus has entered into an agreement to purchase another 17.11 per cent stake in Hong Kong-listed car rental service provider China Auto Rental (CAR), controlled by the founder of Luckin Coffee, for a combined $145 million. The deal will make the private equity firm CAR’s largest shareholder.
Warburg Pincus’s subsidiary Amber Gem Holdings Limited sealed the agreement with UCAR Inc., a Chinese ride-hailing service provider that holds a substantial stake in the car rental business, on April 16 to acquire an aggregate of nearly 362.69 million shares in CAR, shows a regulatory filing with the Hong Kong Stock Exchange (HKEX).
According to the filing, the New York-based private equity major already bought in almost 98.61 million shares, or a 4.65 per cent stake, in CAR from UCAR at a price of HK$2.30 apiece, which translates into a transaction of HK$226.80 million ($29 million).
The remaining 264.08 million shares, or 12.46 per cent shares of CAR, are priced at HK$3.40 apiece. If the transaction is closed, the second tranche will amount to HK$897.87 million ($116 million).
Before the deal, UCAR and Warburg Pincus held approximately 25.92 per cent and 10.11 per cent shares in CAR, respectively. The transactions, once completed, will make Warburg Pincus the biggest shareholder of the firm with a 27.22 per cent stake.
The development follows a recent sharp drop of CAR’s share price as Nasdaq-listed Luckin Coffee, once Starbuck’s challenger in China, made headlines earlier this month when it announced its chief operating officer had fabricated the company sales by 2.2 billion yuan ($311 million) in the final three quarters of 2019.
Charles Lu Zhengyao, co-founder and non-executive chairman of Luckin Coffee who also founded CAR, has handed over shares in the scandal-plagued Chinese coffee chain to lenders after a company controlled by Lu’s family defaulted on a $518 million margin loan.
Warburg Pincus previously invested $200 million in CAR in July 2012, after the company shelved a $138 million U.S. offering in April 2012 due to poor market conditions.
CAR, the biggest car rental service in China, raised HK$3.4 billion in a Hong Kong initial public offering (IPO) in September 2014. At HK$8.50 apiece, shares of CAR were priced at the high end of analyst expectations after being 202 times oversubscribed.
Before the IPO, CAR raised 1.2 billion yuan ($170 million) from Chinese investment holding firm Legend Holdings in September 2010. Legend Holdings is currently its second-largest shareholder with a 26.59 per cent stake.