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IPOs: Redlands Shines Spotlight on Education, Low-Tech IPO Pipeline

Bottom line: New listing plans by education firm Redlands and steel-trading platform Zhaogang point to lower-tech offshore IPOs taking center stage in the first half of the year until the situation for fintech candidates stabilizes.

With fintech offerings in a holding pattern, a stream of lower-tech IPOs are finding their way to market in the first few months of this year. The latest of those is education company Redlands, which has just filed to sell up to $300 million worth of stock in a New York listing. At the same time another lower-tech offering, a steel-trading platform called Zhaogang, is also in the headlines, with media reporting it is gearing up for a Hong Kong listing that could raise up to $500 million.

It's hard to spot a trend from just two offerings, but these deals do have a particularly low-tech bent to them. That's probably at least partly because many of the higher-tech offerings in the current market, which were coming from financial technology firms, or fintech, are on hold at the moment due to regulatory uncertainty. That said, education does seem to be a flavor of the moment, at least in part because many of the companies going to market have found ways to quickly scale-up their business using online models.

On that note, let's jump right in with Redlands, which is the latest in a string of education-related fund-raisings that include both IPOs, new share issues and venture capital investments over the last few months. Redlands has made its first public filing for a listing in New York, including the relatively large $300 million fund-raising target. (English article) The company appears to have a niche providing more professional-oriented education, as opposed to many others that tend to be more mainstream.

Redlands still looks quite small, earning just $90 million in revenue for the 12 months through June last year. That's equally unimpressive considering the company was founded in 2003, or more than a decade ago -- an eternity in today's fast-paced Internet age. The company lost $21 million for that period, though it's worth noting its losses are coming down rapidly. It has also signed on an impressive lineup of investment banks, including Goldman Sachs, Credit Suisse and JPMorgan.

The $300 million fund raising target implies the investment banks think this company is probably worth about $1.5 billion, which is a fairly large sum. The only other education company to list recently, Rise Education (Nasdaq: REDU), earns far more revenue, around $800 million a year. But its profits are also quite small at just $80 million, reflecting difficulty earnings profits in this labor-intensive industry. Perhaps Redlands thinks it has much better profit potential due to its recent shift to online education, which would justify the higher value than Rise, which is currently only worth $900 million.

Riches in Steel

Next there's the Zhaogang news, which is quite brief and comes in the form of some comments from the CEO. He says the company is aggressively pursuing a listing in Hong Kong, though it's still a little early. (Chinese article) The $500 million fund-raising target is also presumably coming from him, which means that could also be a bit overly optimistic since there's nothing officially filed yet.

But the company does look relatively well-positioned in its space, commanding over 40 percent of China's online steel-trading market. That may sound a bit niche, and we don't have any financials to look at in terms of the trading volume it handles. But given the size of China's steel market, this company is presumably handling relatively large volume. That might explain why the company's chief believes Zhaogang should be worth more than $2 billion, though we'll have to wait and see more specifics when it files.

The other deal I'm aware of that's in the pipeline is another low-tech offering for GreenTree, China's only remaining major hotel operator that isn't listed. That listing is set to take place in the second quarter, one of my sources previously told me, and could raise up to $600 million. (English article

Other than that trio, the only other major offshore listings by Chinese firms so far this year have come from Huami, a smart watch maker linked to smartphone maker Xiaomi; and a filing from iQiyi, the online video site controlled by online search leader Baidu (Nasdaq: BIDU). Both of those deals look a little more traditional high-tech, though each is notably not from the financial realm.

I do expect we will see the fintechs come back into the IPO queue later this year when their situation becomes clearer. The bottom line is that the year is already off to a strong start for venture-backed Chinese IPOs in New York and Hong Kong, and I expect we could see a bumper crop of listings in 2018.

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