Carlyle increases its exposure to Chinese education

The global private equity firm invests $50 million in Hao Yue Education Group which runs a vocational college in Beijing.
The Carlyle Group yesterday announced that it has invested $50 million in Hao Yue Education Group, a Beijing-based provider of private education services. The funding will come from Carlyle Asia Growth Partners Group (CAGP).

Hao Yue is a company that provides private higher-education services. Its main school is Beijing Vocational College of Science and Technology, a university with 30,000 students spread across two campuses in the Chinese capital. It is one of China's largest private universities in terms of student numbers, campus size and registered capital, and is licensed to grant government-accredited qualifications. As of 2005, private universities like this had cornered around 11% of China's total higher education market, up from 4.3% in 2003.

The money invested by Carlyle will be used to facilitate Hao Yue's plan to expand its campuses and acquire other vocational schools in order to boost the levels of student enrolment over the next three years. Hao Yue has already spent Rmb1 billion ($140 million) on expansion over the past few years.

Enrolment in Chinese universities has rocketed in the past generation. In 2006 the college enrolment rate was around 50%, which is up from less than 5% in 1977, the year universities opened again after the Cultural Revolution.

To slow down growth, the Ministry of Education has capped the number of new students by limiting the growth of class sizes to 5% year-on-year. "China will likely continue to experience a rapid increase in the number of graduates in the next two years before the effect of the 2005 restrictions are felt," says a report by Citi.

In 2007, 4.5 million college students graduated in China, up from 3.8 million 2006. In 2008, an estimated 5.5 million picked up their mortar boards.

"Despite the surge in college students, China's gross enrolment ratio of 22% is still well below that of developed countries such as the US, which has a gross enrolment ratio of over 80%," notes the Citi report.

This is Carlyle's second investment in the Chinese education sector. In September 2007, it put $20 million into NeWorld Education Group, a language institute that focuses on teaching Japanese.

The opportunity to capitalise on the growing need for quality education in Asia has attracted other financial sponsors as well. Earlier this year Baring Private Equity Asia acquired Nord Anglia Education, which runs schools and provides learning services predominantly in Asia, at an equity value of ú190 million ($293 million).

Earlier this week, Carlyle laid off seven bankers as it shut down its leveraged finance business, citing the global financial crisis and the slowdown in the credit capital markets. But Carlyle emphasised at the time that the firm remains open for business and the latest investment corroborates this.
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