D.E. Shaw Seeks $71 Million in China School Operator Dispute

Hedge fund giant D.E. Shaw & Co. is demanding more than $71 million from a Chinese school operator it invested in that failed to sell shares to the public as promised, according to a recent lawsuit.

New York-based D.E. Shaw, which manages more than $55 billion, said it spent $20 million in 2013 to acquire preferred shares in Ledudu Education, a private company that operates schools and kindergartens in China. The shares could be redeemed with an 18% annualized return if Ledudu didn’t complete an initial public offering by Sept. 1, 2015, D.E. Shaw said in the lawsuit filed Jan. 12 in the Cayman Islands.

The claim offers a rare glimpse into a private market deal gone wrong at one of the world’s most profitable hedge funds. Closely held D.E. Shaw had made several investments in Chinese education, including a bet on RYB Education Inc., whose shares tumbled in 2020, according to exchange filings. The money manager last year raised capital for a debut onshore China fund.

A spokesman for D.E. Shaw declined to comment. Calls and emails to Ledudu Education’s offices went unanswered.

Headquartered in Beijing, Ledudu Education has provided pre-school education to more than 100,000 Chinese households over its almost two-decade history, the company said on its website.

D.E. Shaw said it sent a redemption notice in September. When no payment was made, D.E. Shaw filed the suit against Grand State Investments Ltd., a Cayman Islands holding vehicle for Ledudu Education shares, and which D.E. Shaw now wants put into liquidation.

Investors sometimes link such financing to a company’s plans to sell shares in the future. Last year China Evergrande Group renegotiated billions of dollars of obligations with strategic investors after the real estate giant failed to get the necessary regulatory approval for a listing.

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