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Fitch Downgrades Wisdom Education to ‘B-‘; on Rating Watch Negative

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Fitch Ratings – Hong Kong/Shanghai – 23 Dec 2021: Fitch Ratings has downgraded Wisdom Education International Holdings Company Limited’s Long-Term Issuer Default Rating (IDR) to ‘B-‘, from ‘BB-‘ and has placed the rating on Rating Watch Negative. This follows Wisdom’s announcement on 19 December 2021 that it has deconsolidated its K-12 schools for the financial year ended August 2021 (FY21) in light of China’s Implementation Rules of the Law for Promoting Private Education.

The rules, which came into effect on 1 September 2021, ban social organisations and individuals from conducting related-party transactions with schools that provide compulsory education or from controlling such schools via contractual agreements.

The downgrade is based on the company’s significantly diminished scale and highly fragmented and volatile nature of its remaining ancillary education services business, while the Rating Watch Negative reflects further potential weakening of the company’s business profile, depending on its strategy for its remaining businesses. The rating, however, incorporates limited debt and a cash balance for the remaining consolidated business, which indicates reasonable financial liquidity in the short term. Key Rating Drivers

Regulations Disrupt Business Model: We believe the Implementation Rules will impair the cash flow access of offshore listed K-12 private school operators that […]

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