BEIJING: A selloff in Chinese private education companies deepened on Monday after Beijing announced a sweeping overhaul that threatens to up-end the $100 billion sector and jeopardize billions of dollars in foreign investment.
New Oriental Education & Technology Group Inc. plunged as much as 40%, extending Friday’s record 41% fall and after its U.S. traded shares dropped 54%. It warned in a Monday stock exchange filing that the regulations will have a material adverse impact on the company.
Koolearn Technology Holding Ltd. tumbled as much as 35%, the biggest drag on the Hang Seng Tech Index, which fell 5.2% to its lowest since September 2020. China Maple Leaf Educational Systems Ltd. dropped 16%.
Chinese regulators on Saturday published reforms that will fundamentally alter the business model of private firms teaching the school curriculum, as Beijing aims to overhaul a sector it says has been "hijacked by capital.”
The new regulations ban firms that teach school curriculums from making profits, raising capital or going public. Friday was already a bloodbath for the sector in both Hong Kong and the U.S., after a document on curbing tutoring firms from going public circulated on social media.
The "worst-case became a reality,” wrote JPMorgan Chase & Co. analysts including DS Kim in a note, saying it was uncertain whether the companies could remain listed. "It’s unclear what level of restructuring the companies should undergo with a new regime and, in our view, this makes these stocks virtually un-investable.”
...