Six years after a scandal that had many writing it off as an unrecoverable fraud, Luckin Coffee has returned USD 1.8bn for majority shareholder Centurium Capital in the space of seven months.

This was achieved across two liquidity events, announced in February and September: the transfer of super voting shares to Centurium’s management company intended to ensure it maintains control of Luckin; and the sale of preferred shares to an entity – described by Centurium as a continuation vehicle – backed by Abu Dhabi sovereign wealth fund Mubadala Investment.

Michael Chen, a partner at Centurium, described the first transaction as a stabilising move, noting it is “in the best interests of the company to have long-term capital that won’t change title.”

The second, meanwhile, was not necessarily expected. Fund I, the primary selling entity in both transactions, still had several years to run and Centurium was in no rush to sell. Mubadala, which had been tracking Luckin for several years as part of efforts to build exposure to China’s consumer sector, made the first move. This resulted in a bilaterally negotiated deal.

It represents institutional endorsement of the business model that has turned Luckin into the largest coffee shop chain in Greater China with more than 36,300 stores as of June, according to public filings. Mubadala acknowledged the company’s “combination of scale, digital capabilities and rapid product innovation” in a statement announcing the deal. It also caps a notable turnaround.

Ups and downs

Centurium was responsible for USD 180m of the USD 500m private investors pumped into Luckin between its inception in 2017 and its May 2019 IPO. Most of this came from the firm’s debut fund, which closed on USD 2bn the same year. A partial exit returned USD 232m in early 2020, just as Centurium was working towards a first close on Fund II.

Three months later, Luckin disclosed that a large portion of its 2019 sales were fabricated. The company was delisted from NASDAQ and moved to the over-the-counter market. Founders and senior management complicit in the fraud were removed. A financial restructuring was initiated that exited Luckin from US bankruptcy. And Centurium put Fund II on hold, eventually closing on USD 1bn in 2023.

The private equity firm provided USD 240m in rescue financing in 2021, which was used to settle regulatory fines and restructure outstanding senior notes. The following year it became the majority shareholder, having participated in a transaction that took out positions held by ex-management.

Centurium held a 47.8% voting interest in Luckin as of March, largely by virtue of its super voting shares. If all shares were converted into a single class on a one-to-one basis, it would own 23.1%. These are now held by the Mubadala-backed entity and the GP – following the two transactions this year – as well as Fund II, a renminbi-denominated fund, and several separately managed accounts.

Despite its difficulties, Luckin remained operational and continued to grow. The company ended 2020 with 4,803 stores, of which 3,929 were self-operated, while posting net revenue of CNY 4bn (USD 618.1m) and a net loss of CNY 5.6bn, its annual report stated. For the 12 months ended December 2025, Luckin generated CNY 49.3bn in net revenue and CNY 3.6bn in net profit from a network of 31,048 stores.

According to Chen, the business started to stabilise in 2020, and its subsequent upward trajectory was only mildly curtailed by bouts of competitive pressure. China’s coffee retail industry seems locked in an interminable price war, with Luckin challenged first by upstarts like Cotti Coffee and Manner Coffee and then by delivery platforms under Alibaba Group and Meituan.

“In each of these industry movements, we have become stronger. Management has demonstrated it can execute well,” Chen explained.

“If you don’t have scale, you get squeezed, that’s what we learned in the delivery war. But you need a strong base of directly owned stores as well. Franchisees will always look at their own P&L [profit and loss statement], regardless of whether you want to grab market share or look at the longer term.”

Resilient model

About two-thirds of Luckin’s stores remain directly owned. The balance could tilt if the company relies more on franchise partners outside of mainland China and Hong Kong – as of June, it had 114 partnership stores in Malaysia, 89 directly owned stores in Singapore and 20 directly owned stores in the US. But Chen describes it as most likely “a tweak, not a massive change.”

Direct ownership is seen as an essential component of a resilient ecosystem, ensuring supply chains and digital infrastructure function properly and expansion proceeds on plan. Luckin remains wedded to a business model underpinned by mobile ordering, pickup-oriented stores, and a tech-enabled backend.

Store count is set to reach 40,000 this year. This is streets ahead of any other food and beverage business in China, with Yum China on about 19,000 across its different brands, Cotti on 10,000, and Starbucks on 8,300. But Chen dismisses the notion of Luckin reaching a ceiling.

“If you look at consumer patterns, it goes from tier-one cities to tier-two, three, four. It takes a few years, but it will happen. Our same-store sales growth is already higher in lower-tier cities than higher-tier cities,” he said.

“With coffee penetration being so low – Korea and Japan are multiples higher than China – there is still room for growth on a per capita basis and on a whole market basis. We will still see double-digit market growth year-on-year over the next couple of years.”

Centurium’s ultimate exit path is uncertain. Luckin CEO Jinyi Guo said at a conference last year that the company is looking to relist on US main board. However, no timeline was given for this process, which would involve multiple regulatory approvals. Chen declined to comment on the matter. However, he hopes the two liquidity events this year throw a positive light on China exits more generally.

“What we did wasn’t easy – it’s one of the most difficult situations I’ve worked on – but we’ve shown if you hold high-quality assets that are scarce and sustainable, there will be ways to exit through different structures,” he said.