Raffles Education unit to sell stake in China university operator for $84.6m

SINGAPORE - Raffles Education Corp is selling its 51 per cent stake in China university operator, Langfang Development Zone Oriental University City Sino-Singapore Education Investment Co, for 420 million yuan ($84.6 million) to an individual, Liu Yanwen.

The sale will be made through Raffles Education's subsidiary, Langfang Tonghui Education Consultancy Co, which holds the entire beneficial interest in the equity interest in Langfang Development Zone Oriental University City Sino-Singapore Education Investment through Mr Liu.

The university operator, which is primarily engaged in the business of offering educational services, had not generated positive cash inflow since its inception, Raffles Education said in a regulatory filing on Monday after midnight.

The company, which runs private schools in Asia, believes the financial position of the university operator is "unlikely to improve in the near future" and is looking to maximise the cash return to the group with the disposal, barring unforeseen circumstances.

With the sale of its stake, the net gain on the disposal is expected to be around S$41.6 million, before income tax. Net loss attributable to sale equity interest is around S$218,000.

The sale proceeds will be used for Raffles Education's working capital, repayment of loans or opportunistic investments, it said.

The sale will be fully satisfied in cash, with Mr Liu paying Raffles Education with immediately available funds through a 42 million yuan deposit within five days of the sale and purchase agreement (SPA)'s execution, and two tranches of payment.

The first tranche payment of 126 million yuan, less the deposit of 42 million yuan, needs to be made by Mr Liu or his designated related party by Sept 30, 2019, depending on whether or not the sale conditions are fulfilled.

The second tranche payment of 294 million yuan must be paid by Sept 30, 2020, or extended to Sept 30, 2022 with the written consent of Raffles Education under certain conditions.

This includes Mr Liu remedying any breaches of the SPA within 10 days of written notice given by Raffles Education; paying at least 126 million yuan of the sale amount by Sept 30, 2020; and arranging for long-term interest payments on the outstanding amount.

Failure to pay the deposit, first tranche payment, or the sale amount and its interest, will give Raffles Education the option to transfer the entire equity interest of the university operator to a designated party.

Raffles Education will also not be required to pay any sums to Mr Liu, unless he returns a portion of the sale amount before the date of transfers. This may amount to an asset usage fee of 40 million yuan per annum; 50 million yuan in liquidated damages payable to Raffles Education; or all costs and expenses incurred in the option to transfer exercise.

Mr Liu will also personally guarantee the performance of any designated related party of obligations and liabilities under the SPA, including but not limited to obligations of the sale payment.

Mr Liu had over the years injected funds into the university operator to provide for operating expenses and other expenses to allow Hebei Oriental University, a college it operates, to meet requirements for its undergraduate college recognition in 2016.

Upon the completion of the sale, all prior agreements between Mr Liu, Langfang Development Zone Oriental University City Sino-Singapore Education Investment Co and Raffles Education will "cease and terminate in its entirety and be superseded by the terms of the SPA", the filing added.

The deal is subject to board approval and if necessary, shareholder approval via a ordinary resolution in a general meeting for the transactions in the SPA.

Raffles Education shares were trading at $0.095 on Monday as at 10.28am, up one cent.