Curbs on preschool IPOs

Listed firms not allowed to invest in kindergartens

China will not allow private kindergartens to raise funds through share sales by themselves or as part of asset packages, the State Council, the cabinet, said on Thursday in a policy document.

Listed companies will not be allowed to invest in kindergartens and purchase kindergarten shares through stock issue or cash, it said.

Shares of several listed preschool stocks plunged in the wake of the announcement, and industry analysts said the policy may prove bearish for private kindergartens. They said the exact impact can be gauged after the actual implementation of the policies.

Shares of NYSE-listed RYB Education Inc tumbled 52.97 percent on Thursday, and closed at $7.83, down $8.82. In November last year, the privately owned Beijing RYB kindergarten in Chaoyang district's Xintiandi community was found to have allegedly abused young children.

Beijing RYB kindergarten responded on Friday that the company's management team has urgently discussed the issue, and the company's shares may fluctuate in the short term. Whether to withdraw the listed kindergarten capital from the market depends on further policy arrangements, it said.

NYSE-listed Bright Scholar Education Group, the largest operator of international and bilingual schools in China, saw its shares decline 16.71 percent on Thursday and closed at $10.57.

Meanwhile, some preschools listed on the A-share market and the Hong Kong bourse fell on Friday, with some even hitting daily lows.

Shares of Shenzhen-listed Vtron Group Co Ltd dropped 10.05 percent on Friday and closed at 5.28 yuan ($0.76).

Southwest Securities said Vtron accounts for 2 percent of the kindergarten market share in China, and most of the kindergartens under the group are positioned as higher-end and located in major cities.

Li Yizheng, deputy general manager of Vtron, said the move will have a significant impact on the sector. The company is researching the solutions, and it is not convenient to issue opinions before it understands the issues more clearly, he said.

Industry reports said the latest policy means in the future, kindergarten assets can't be capitalized at all. But for the moment, the policy only targets kindergartens, and does not include other entities in the education sectors.

The announcement also said social capital must not invest in kindergartens run by State-owned and collective assets, as well as non-profit kindergartens, by mergers and acquisitions, trustee operation, franchise chains and protocol control.

Those who violate the regulations will face rectification measures from the education department, and no capital increase or share expansion shall be permitted before the completion of the rectification.

Besides, the announcement on preschool education reform pointed out that before June next year, local governments need to implement classified management rules of private kindergartens. They should also strictly audit the qualifications, kindergarten orientation, curriculum resources, scales, and management abilities of profit-seeking kindergartens.