Caixin
Oct 30, 2020 05:17 AM
BUSINESS & TECH

Troubled Private Tutor Yousheng Loses Lifeline Amid Escalating Crisis

An office of Yousheng in Beijing
An office of Yousheng in Beijing

Embattled Chinese private tutoring company Yousheng Education was dealt a fresh blow after a white-knight investor dropped a takeover plan to rescue the debt-ridden company, which is struggling to pay millions of yuan in refunds.

Shenzhen-listed jewelry maker Jinzhou Cihang Group Co. Ltd. said it scrapped a plan proposed in May to acquire Beijing-based Beijing Yousheng Education Technology Co. Ltd. for as much as 500 million yuan ($74.4 million) because of uncertainties in Yousheng’s business outlook.

A week ago, thousands of people descended on Yousheng’s headquarters in Beijing demanding refunds or unpaid salaries amid rumors the tutoring company was on the verge of bankruptcy.

Most of those who gathered were the parents of students who claimed they weren’t getting value for money. Established in 2014, Yousheng operated 734 outlets in multiple cities including Beijing, Guangzhou, Shenzhen and Tianjin, hiring more than 30,000 full-time and part-time employees by summer 2019. Caixin learned that some of Yousheng’s local operations face customer refund demands amounting to millions of yuan.

Amid the escalating crisis, Yousheng founder and Chairman Chen Hao stepped away from public view after he missed a scheduled online lecture Oct. 25, sparking speculations that some of the company’s executives were detained by police, a Yousheng customer said. But Chen denied that in an Oct. 26 reply to a Caixin inquiry.

In an online speech Oct. 21, Chen said Yousheng was suffering under tightening policies in the private tutoring industry and heavy costs for massive office renovations. The company’s efforts to go public in 2018 also drained resources without obtaining the expected result, Chen said.

Yousheng’s capital crunch started to emerge in summer 2019 when it reportedly missed payments to some employees. Customer complaints about service quality and difficulties obtaining refunds swirled around the company. The Covid-19 pandemic and subsequent lockdowns further worsened the company’s condition.

Seeking a rescue, Yousheng in May agreed a takeover bid from Jinzhou Cihang. As part of the deal, the parties signed an agreement in which Yousheng promised to achieve net profit of 500 million yuan for the period between 2020 and 2024.

The Shenzhen stock exchange Oct. 21 demanded that Jinzhou Cihang update progress of the deal and disclose potential risks related to Yousheng’s business troubles. In a filing with the exchange, Jinzhou Cihang said Yousheng confirmed its capital crunch caused by business interruption amid the pandemic and customers’ demands for refunds.

Jinzhou Cihang itself suffered a stock price slump reflecting poor business performance. The company received a delisting warning in July after its stock traded below its 1 yuan face value for 18 consecutive trading days.

Jinzhou Cihang said the decision to terminate the acquisition of Yousheng will not lead to any compensation as the deal was not formalized. Yousheng didn’t comment.

Partly sparked by Yousheng’s troubles, China’s government announced a yearlong cleanup of the after-school tutoring industry, targeting out-of-school training institutions’ dodgy business practices that may place customers in unfavorable situations.

Contact reporter Han Wei (weihan@caixin.com) and Bob Simison (bobsimison@caixin.com).

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