Youdao Updates On China's Regulations Of Registering Education Companies As Non-Profit, Prohibition On Raising Capital

China-based intelligent education company Youdao Inc DAO elaborated on the General Office of the Communist Party of China Central Committee and the General Office of the State Council's joint guideline issued on Jul. 24 regarding homework and after-school tutoring for students.
The guidelines mandated registration as a non-profit organization by the institutions offering online after-school tutoring on academic subjects in compulsory education.
The institutions need to obtain approval from the relevant regulatory authorities and comply with various operational requirements for class hours, faculty qualifications, tuition standards, advertising.
The rules prohibited the tutoring businesses from raising funds through stock exchange listings or other capital-related activities.
They also prohibited foreign investments in school curriculum-based tutoring institutions through variable interest entity (VIE) arrangements, mergers, and acquisitions or otherwise.
The rules prohibited the listed companies from raising capital through equity offerings to invest in businesses offering tutoring on academic subjects in compulsory education.
The rules also mandated corrective actions for violation of the same.
Price action: DAO shares traded lower by 20.40% at $10.10 in the premarket session on the last check Monday.