Jianzhi Education did not learn anything from Didi debacle and files for US IPO

By Elles Houweling

Edtech firm Jianzhi Education has filed for a US initial public offering (IPO), making it the first Chinese company to attempt a US float since the recent Beijing cybersecurity clampdown which led to ride-hailing app Didi Chuxing’s stock price slump. This will be Jianzhi Education’s fifth attempt at an IPO, after four previous tries in Hong Kong failed.

The Beijing-based education platform that focuses on providing vocational education for adults proposed to raise $50m through the sale of American depositary shares, according to its filing with the US securities regulator.

Under normal circumstances, this would have been a relatively unspectacular debut. However, what is notable is the company’s audacity to propose a US debut after Beijing made it clear recently that it intends to keep tech companies from listing abroad, especially in the US. Lianzhi’s courage may be due to the company’s smaller underwriters, who may be less aware of the controversy surrounding Chinese stocks listing in the US.

A valuation in the $700m to $800m range is expected due to the company’s profitability and relatively low regulatory risk. Following China’s recent administrative development, Jianzhi Education has included cybersecurity reviews as part of its “risk factors” in its US filing.

“We offer our mobile and desktop applications in China, and we could be subject to cybersecurity review in the future. During such review, we may be required to suspend new user registration in China and experience other disruptions to our operations,” it said.

That is what happened to Didi Chuxing, as well as the Uber-like trucking startup Full Truck Alliance and Kanzhun, which connects job seekers and hiring enterprises via a mobile app.

Didi’s debacle

China’s biggest ride-hailing app Didi Chuxing celebrated a record-setting $4.4bn IPO, making it the second-largest US debut of a Chinese company after Alibaba’s 2014 listing. However, its victory was short-lived. A mere three days after the company was listed on the New York Stock Exchange (NYSE), the Cyberspace Administration of China (CAC) announced a probe into Didi.

Citing illegal collection of users’ personal data, the app was subsequently removed from Chinese app stores. Soon after, the ride-hailing giant’s share prices plummeted. The company lost $15bn in market value in one single day.

Consequently, less-than-happy US investors slapped the company with two lawsuits – one in New York and one in Los Angeles. Reportedly, Didi was advised by the CAC to halt its IPO and to review its network security weeks before its stock market debut. However, under pressure from investors, the company decided to go ahead with the IPO regardless.

Regulatory storm clouds forming

Beijing has recently introduced a myriad of new laws, indicating the government’s ambition to keep home-grown tech companies at home.

Last weekend, the CAC proposed draft rules calling for tech companies with more than one million users to undergo security reviews before listing overseas. The document covers data security risks involving foreign powers, citing concerns that information could be illegally transferred or leaked abroad.

China’s Ministry of Industry and Information Technology (MIIT) also recently released a draft action plan to boost the country’s cybersecurity industry. This further highlights that the government is spooked by data leaks amid rising geopolitical tensions, notably with the US.

The three-year plan calls on key industries, such as telecommunications, to devote 10% of its IT budget to cybersecurity within the next three years.

In addition, regulators in Beijing recently passed the “Data Security Law of the People’s Republic of China“, the “Personal Information Protection Law” and the “Critical Information Infrastructure Security Protection Regulations”. These are all similar bills aimed at better controlling cross-border data flow.

The situation has gotten so tense that numerous companies that filed for IPOs in the US appear to have withdrawn their applications. This list of companies recently “missing in action” includes Alibaba-backed medical data group LinkDoc, 3D interior design platform Manycore as well as education company Spark Education.

If at first you don’t succeed

Aside from the crackdown on tech companies, Jianzhi is also engulfed in Beijing’s ongoing battle with online providers of extracurricular classes. These companies have come under regulatory scrutiny lately amid growing concerns that Chinese primary school students have become too stressed out by all the classwork heaped on them in and outside of school.

Yet, despite the coinciding regulatory uncertainty, a US listing might be among the few options the 10-year company has to raise funds. The group previously made four attempts to list in Hong Kong between 2018 and 2020, with the latest application having “lapsed” last September, according to Hong Kong stock exchange data.

Jianzhi Education started its operations by providing educational content products and IT services to higher education institutions, and since then has become a leading provider of digital educational content in China.

The company states that it was the seventh-largest digital content provider for higher education and the largest online career training services provider for higher education institutions in China in 2020.

The Beijing-based company was founded in 2011 and booked $68m in revenue for the 12 months ended March 31, 2021. It plans to list on either the NYSE or the Nasdaq, and it has not selected a ticker symbol yet.

Jianzhi Education Technology filed confidentially on March 26, 2021. AMTD Global Markets and Loop Capital Markets are the joint bookrunners on the deal. A pricing range has not yet been disclosed.