May 20, 2020 / 4:08 AM / 14 days ago

UPDATE 1-Luckin scandal ripple effect prompts chairman-backed firm to seek cash -sources

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By Julie Zhu and Zhang Yan

HONG KONG/BEIJING, May 20 (Reuters) - A company linked to China's scandal-hit Luckin Coffee Inc is seeking fresh capital, sources said, highlighting the ripple effect of Luckin's fabricated transactions as the chairman of both firms scrambles to avoid a cash crunch.

UCAR Inc, founded by Charles Zhengyao Lu, is looking to sell its limited partner (LP) interest worth 1 billion yuan ($141 million) in Chinese private equity firm Centurium Capital's yuan fund, people with knowledge of the matter told Reuters.

The chauffeured car service provider, in which Lu is the biggest shareholder owning roughly 10%, has approached prospective investors for its 30.75% LP interest in UCAR Industrial Fund, managed by Centurium, said the people. Private equity fund investors are also known as LPs.

The move comes as alleged fraud at Luckin has weighed on Lu's interests and dented sentiment toward U.S.-listed Chinese stocks. Luckin on April 2 revealed much of its 2019 sales were fabricated, sending its shares down more than 80%. UCAR shares have also since fallen nearly 60%.

UCAR and Lu did not respond to requests for comment. Centurium, which is also a Luckin shareholder, declined to comment. The people spoke on condition of anonymity as the matter is confidential.

UCAR on April 17 said the scandal had prompted financial institutions and suppliers to demand payment, and that it was considering ways of avoiding a bigger liquidity hit.

Last month, UCAR said it had agreed to sell a stake in a fintech firm to UCAR Industrial Fund for 250 million yuan and sell part of its holdings in auto rental firm CAR Inc, also founded by Lu, to Warburg Pincus for up to $144 million.

UCAR Industrial Fund has raised about 3.25 billion yuan since inception in 2017 and focuses on auto- and consumer-related investments, such as in electric vehicle maker Xpeng Motors, two of the people said.

Its largest LPs are UCAR and a unit of the asset management joint venture between Industrial and Commercial Bank of China Ltd and Credit Suisse Group AG, with the latter committing 1.5 billion yuan, the corporate registry showed.

($1 = 7.1063 Chinese yuan renminbi)

Reporting by Julie Zhu in Hong Kong and Zhang Yan in Beijing; Editing by Christopher Cushing

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