Chinese edutainment provider iHuman intends to raise $100 million in an initial public offering, a filing with Wall Street’s watchdog shows, at a time when US-listed China-based companies are drawing increasing scrutiny over their accounting practices.

Beijing-headquartered iHuman offers a subscription- and advertising-funded online service through which young children can learn about a range of subjects including languages, maths, science and culture.

The firm’s management team claims it is the number-one provider of online childhood edutainment in China, referencing a report by Frost & Sullivan for which it paid and commissioned.

To date, iHuman has raised at least $53 million from private investors.

The $100 million it aims to raise through its US IPO will fund an expansion of iHuman’s product and service offerings domestically and overseas; development of existing products and services; improvements to its technology; and marketing and brand promotions.

Credit Suisse, Citigroup, Tiger Brokers, CMBI and CLSA are listed as bookrunners for the float.

iHuman’s plans to issue American Depositary Shares, which represent underlying Class A ordinary shares, come as the Trump administration seeks to tighten its grip on Chinese firms listed on US exchanges, following a spate of frauds stemming from alleged shadowy accounting procedures.

The Chinese state, at present, is able to block access to domestic companies’ accounting records and auditing files by US authorities and auditors. Meanwhile, managers of Chinese companies listed on US exchanges cannot be prosecuted in China for defrauding overseas investors.

Critics say that this dichotomy in regulatory oversight between the two nations can, in some cases, facilitate and even incentivise fraud, as Chinese firms can misrepresent their financials to global investors through US exchanges without risking repercussions at home.

US President Donald Trump’s moves to narrow this gap have prompted several Chinese companies – including some education providers – to de-list or pursue dual listings in Hong Kong.

In August, China-based after-school tuition provider New Oriental said it would seek to raise $1 billion through a second listing on the Hong Kong Stock Exchange, potentially before the year’s end.

In June, China Distance Education received a take-private offer from its management team just days after Trump announced that a crackdown on US-listed Chinese companies was coming.

Separately, around a dozen short-sellers have this year accused GSX Techedu, a $22 billion online tuition provider based in China and listed in New York, of brushing its student numbers and inflating its financial performance – constituting fraud. GSX Techedu is now under investigation by the US Securities and Exchange Commission, the company confirmed in its delayed second-quarter earnings report.

Date published: 5 October 2020

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