A US hedge fund is seeking more than $71 million from a Chinese school and pre-school operator it had invested in that failed to IPO as promised, according to a media report.

New York-based D.E. Shaw & Co, which manages more than $55 billion, said in a lawsuit that in 2013 it paid $20 million to acquire preferred shares in Ledudu Education.

The shares could be redeemed with an 18% annualised return if Ledudu failed to sell its shares on the public market by 1 September 2015, D.E. Shaw said in a lawsuit, Bloomberg reported.

Chinese pre-school operators at present are prohibited from listing shares on, or raising capital from, public markets following the implementation of regulations in November 2018 that allowed Beijing to tighten its grip on the mainland’s booming private childcare market. The move at the time sent shockwaves through the sector and prompted sharp declines in the share prices of publicly listed China-based pre-school operators, such as RYB Education, which dived 53%.

According to Bloomberg, D.E. Shaw also invested in RYB Education – whose shares fell further last year – amid a string of bets on Chinese education companies.

While Ledudu Education is now prevented from pursuing a flotation, the regulations rolled out in 2018 would not have prevented it from meeting the deadline September 2015 IPO deadline cited by D.E. Shaw in its lawsuit.

Headquartered in Beijing, Ledudu Education has provided pre-school education to more than 100,000 Chinese households over its near two-decade history.

D.E. Shaw said it sent a redemption notice in September. When no payment was made, D.E. Shaw filed the suit against Grand State Investments Ltd., a Cayman Islands holding vehicle for Ledudu Education shares, and which D.E. Shaw now wants put into liquidation.

Date published: 17 February 2021

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