Education Stocks in China Fall, After Government Slaps More Curbs on Private Preschool Market
Education stocks in Hong Kong and China dropped in the early hours of trading on Friday, the 16th of November, as the mainland government increased their control over the country’s rapidly rising private market industry.
The stocks for over three leading private school operators tumbled by over 20 percent in late morning trading for the day. The preschool company RYB Education suffered the major brunt of the fall in the New York Stock Exchange on Thursday, as the prices fell by over 53 percent. Following RYB Education were the stocks for China Maple Leaf Educational Systems, which fell by 18 percent, Wisdom Educational International Holdings, which slumped down by some 16.4 percent, and the China Yuhua Education, which went done by some 15.1 percent.
These reductions were seen after the State Council, the Chinese Cabinet, banned all privately owned kindergartens from being listed publically. The ban would apply regardless of whether they did so independently, or as part of a group. This announcement was made as part of a policy document released on Thursday’s evening.
The directive has also forbid profit raising kindergartens from raising funds from listen companies through equity issuance or cash injection. This has been done, to curtail the excessive profit-generating and seeking behavior adapted by these schools.
This latest move targeting the kindergarten operators has further ignited the piling worries about the government’s tightening rules over the expanding market for private education. This market is expected to reach a cap of over 4.9 trillion yuan by the end of 2020 from the 2.9 trillion yuan they had back in 2016. These figures were released by the consultancy Frost and Sullivan.
As per Johnny Kin Man Wong, an equity analyst at investment bank Jefferies, introduction of these regulation may have been a reaction to massive private equity money raising the prices by “…flooding the market trying to buy up private kindergartens, driving up prices.”
Just three months ago, draft legislation for this matter had triggered a panic-like situation in the market. The vaguely worded draft legislation had prompted investors towards a panic sell-off in August. The stocks for the education market are still to recover from this panic sell-off some three months ago.
This current legislation, if implemented in the strictest form, would end up forcing thousands of private school operators into giving up acquisition and merger plans. They would also have to relinquish land subsidies and tax. These details were released by prominent analysts and lawyers, who gave us a look into the world of finance for education in China, after the implementation of this legislation.
The total number of private education-related institutions in China has come up to around 177,600 in 2017. This figure has grown from the 136,393 private education institutions present in the country in 2009.