Correspondence 0001104659-23-098046 from 51Talk Online Education Group (COE)
51Talk Online Education Group
Date: Sept. 5, 2023 · CIK: 0001659494 · Accession: 0001104659-23-098046
AI Filing Summary & Sentiment
File numbers found in text: 001-37790
Referenced dates: August 7, 2023
Letter
VIA EDGAR Division of Corporation Finance Office of Trade & Services Securities and Exchange Commission RE: 51Talk Online Education Group (the “Company”) Form 20-F for Fiscal Year Ended December 31, 2022 Filed April 6, 2023 File No. 001-37790
Dear Ms. Gowetski, Mr. Dunham, Mr. Parker, Mr. Stringer, Ms. Beech and Ms. Beysolow:
This letter sets forth the Company’s response to the comments contained in the letter dated August 7, 2023 from the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) regarding the Company’s annual report on Form 20-F for the fiscal year ended December 31, 2022 filed with the Commission on April 6, 2023 (the “2022 Form 20-F”). The Staff’s comments are repeated below in bold and followed by the Company’s responses thereto. All capitalized terms used but not defined in this letter shall have the meaning ascribed to such terms in the 2022 Form 20-F.
Form 20-F for the Fiscal Year Ended December 31, 2022
Item 3. Key Information, page 4
1. Please revise to disclose prominently that you are not a Chinese operating company but a Cayman Islands holding company with operations conducted by your subsidiaries based in China and Hong Kong, and that this structure involves unique risks to investors. Your disclosure should acknowledge that Chinese regulatory authorities could disallow this structure, which would likely result in a material change in your operations and/or a material change in the value of your securities, including that it could cause the value of such securities to significantly decline or become worthless. Provide a cross-reference to your detailed discussion of risks facing the company as a result of this structure.
Division of Corporation Finance
Office of Trade & Services
Securities and Exchange Commission
September 5, 2023
Page 2
The Company respectfully submits to the Staff that the Company conducts its business operations through its offshore subsidiaries, including its Hong Kong subsidiaries, as well as its subsidiaries in mainland China. The Company only conducts part of its operations, which solely pertains to research and development, administration and sales and marketing, through its wholly-owned mainland China subsidiaries. As advised by the Company’s PRC legal counsel, Shihui Partners, although the Company’s mainland China subsidiaries are subject to certain PRC regulations related to foreign investment and foreign exchange, there is no material risk as to that the PRC government would entirely disallow the Company’s current structure, namely that the Company, a Cayman Islands holding company, conducts part of its operations, which solely pertains to research and development, administration and sales and marketing, through its wholly-owned subsidiaries in mainland China. In light of the foregoing, in response to the Staff’s comment, the Company respectfully proposes to revise the referenced disclosure as follows (page reference is made to the 2022 Form 20-F to illustrate the approximate location of the disclosure) in its future Form 20-F filings (with deletions shown as strike-through and additions underlined), subject to updates and adjustments to be made in connection with any material development of the subject matter being disclosed:
Page 4
ITEM 3. KEY INFORMATION
Our Holding Company Structure
51Talk Online Education Group is not an operating company but a Cayman Islands holding company. We conduct our business operations through our offshore subsidiaries, including our Hong Kong subsidiaries, as well as our subsidiaries in mainland China. We conduct part of our operations, which solely pertains to research and development, administration and sales and marketing, through our mainland China subsidiaries. Investors in our ADSs are purchasing equity interest in a holding company incorporated in the Cayman Islands instead of equity interest in our operating subsidiaries. This structure involves unique risks to investors who hold our ADSs. For example, as a holding company, our mainland China subsidiaries are subject to regulations on loans to, and direct investment in, mainland China entities by offshore holding companies. For a detailed description of risks related to having operations in China, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Global Operations—PRC regulation on loans to, and direct investment in, mainland China entities by offshore holding companies and governmental control in currency conversion may delay or prevent us from using the proceeds of our equity offerings to make loans to our mainland China subsidiaries or make additional capital contributions to our mainland China subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business.”
Division of Corporation Finance
Office of Trade & Services
Securities and Exchange Commission
September 5, 2023
Page 3
2. Please further expand your disclosure about the legal and operational risks associated with being based in or having the majority of the company’s operations in China. Your disclosure should make clear whether these risks could result in a material change in your operations and/or the value of your securities or could significantly limit or completely hinder your ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless. Your disclosure should address how recent statements and regulatory actions by China’s government, such as those related to data security or anti-monopoly concerns, have or may impact the company’s ability to conduct its business, accept foreign investments, or list on a U.S. or other foreign exchange. Include a cross-reference to each individual risk factor.
In response to the Staff’s comment, the Company respectfully proposes to revise the referenced disclosure as follows (page reference is made to the 2022 Form 20-F to illustrate the approximate location of the disclosure) in its future Form 20-F filings (with deletions shown as strike-through and additions underlined), subject to updates and adjustments to be made in connection with any material development of the subject matter being disclosed:
Page 4
ITEM 3. KEY INFORMATION
Our Holding Company Structure
. . .
We face various legal and operational risks and uncertainties associated with having part of our operations in China and the complex and evolving PRC laws and regulations. For example, we face risks associated with regulations on loans to, and direct investment in, mainland China entities by offshore holding companies. These risks could result in a material adverse change in our operations and the value of our ADSs or cause the value of such securities to significantly decline or become worthless. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Global Operations—PRC regulation on loans to, and direct investment in, mainland China entities by offshore holding companies and governmental control in currency conversion may delay or prevent us from using the proceeds of our equity offerings to make loans to our mainland China subsidiaries or make additional capital contributions to our mainland China subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business.”
The PRC government has recently implemented industry-wide regulations, including data security and anti-monopoly related regulations. After the divestiture of the China Mainland Business, we have ceased selling our service offerings in mainland China and only conduct part of our operations in mainland China, thereby regulations in this nature or regulatory actions related to the PRC Enterprise Income Tax Law do not have a material impact to our ability to conduct our business, accept foreign investments, or list on a U.S. or other foreign exchange.
Division of Corporation Finance
Office of Trade & Services
Securities and Exchange Commission
September 5, 2023
Page 4
3. Please revise to discuss the legal and operational risks associated with having operations in Hong Kong. Discuss any applicable laws and regulations in Hong Kong and the risks and consequences to the company. As an example, disclose how regulatory actions related to data security or anti-monopoly concerns in Hong Kong and China's Enterprise Tax Law have or may impact the company’s ability to conduct its business, accept foreign investment or list on a U.S./foreign exchange. Include risk factor disclosure explaining whether there are laws/regulations in Hong Kong that result in oversight over data security, how this oversight impacts the company’s business and the offering, and to what extent the company believes that it is compliant with the regulations or policies that have been issued.
The Company respectfully submits to the Staff that the proposed revision with respect to the regulatory actions related to China’s Enterprise Tax Law is included in the Company’s response to Comment # 2.
In response to the Staff’s comment, the Company respectfully proposes to revise the referenced disclosure as follows (page reference is made to the 2022 Form 20-F to illustrate the approximate location of the disclosure) in its future Form 20-F filings (with deletions shown as strike-through and additions underlined), subject to updates and adjustments to be made in connection with any material development of the subject matter being disclosed:
Page 4
ITEM 3. KEY INFORMATION
Our Holding Company Structure
. . .
In addition, as we conduct operations in Hong Kong, we face legal and operational risks under a variety of laws and regulations in Hong Kong, such as laws and regulations related to data privacy and cybersecurity, anti-monopoly and education. As of the date of this annual report, regulatory actions related to data security or anti-monopoly concerns in Hong Kong have not had a material impact on our ability to conduct business, accept foreign investment in the future or continue to list on a United States or other foreign stock exchange. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—Our business generates and processes a large amount of data, and we are required to comply with applicable laws relating to privacy and cybersecurity. The improper use or disclosure of data could have a material and adverse effect on our business and prospects” and “Item 3. Key Information—D. Risk Factors—Risks Related to Our Global Operations—We provide our course offerings to our students in Hong Kong and are subject to laws, rules and regulations governing the accessibility and content of our course offerings, such as the Education Ordinance and anti-discrimination laws. Non-compliance with the relevant laws and regulations regarding our operations in Hong Kong may materially and adversely affect our reputation, business operations and prospects.”
Division of Corporation Finance
Office of Trade & Services
Securities and Exchange Commission
September 5, 2023
Page 5
Page 12
Our business generates and processes a large amount of data, and we are required to comply with applicable laws relating to privacy and cybersecurity. The improper use or disclosure of data could have a material and adverse effect on our business and prospects.
Our business generates and processes a large quantity of data. We face risks inherent in handling and protecting large volume of data. In particular, we face a number of challenges relating to data from transactions and other activities on our platforms, including:
· protecting the data in and hosted on our system, including against attacks on our system by outside parties or fraudulent behavior or improper use by our employees;
· addressing concerns related to privacy and sharing, safety, security and other factors; and
· complying with applicable laws, rules and regulations relating to the collection, use, storage, transfer, disclosure and security of personal information, including any requests from regulatory and government authorities relating to these data.
As all of our servers and routers, including backup servers, are currently hosted by third-party service providers in Singapore, we are, with regards to privacy legislation, subject principally to the Singapore Personal Data Protection Act 2012 which provides a baseline standard for the protection of personal data in Singapore. See “Item 4. Information on the Company—B. Business Overview—Government Regulations—Singapore Regulations.” Similarly, there are personal data protection laws and regulations imposed on our group companies in each of the jurisdictions that we operate in. For example, we have obligations under Hong Kong’s Personal Data (Privacy) Ordinance (Chapter 486 of the Laws of Hong Kong) or PDPO, and Malaysia’s Personal Data Protection Act. In particular, the PDPO applies to data users that control the collection, holding, processing or use of personal data in Hong Kong. We are subject to the general requirements under the PDPO, including the requirements to obtain the prescribed consent of data subjects and to take all practicable steps to protect the personal data held by data users against unauthorized or accidental access, loss or use. Non-compliance with the PDPO may lead to a variety of civil and criminal sanctions including fines and imprisonment. In addition, data subjects have a right to bring proceedings in court to seek compensation for damage caused by a contravention of the PDPO. We have taken various measures to guard against unauthorized access or use of data collected from users or accidental data leak. As of the date of this annual report, we have not received any warning, penalty, administrative punishment from relevant authorities in Hong Kong as a result of violations of applicable laws and governmental policies including the PDPO, nor have received requests from governmental authorities to improve our online platform to enhance protection over personal data.
Division of Corporation Finance
Office of Trade & Services
Securities and Exchange Commission
September 5, 2023
Page 6
4. We note your disclosure on page 4 that “[h]istorically, [you] conducted [y]our business in mainland China primarily through [y]our mainland China subsidiaries and former mainland China consolidated VIEs,” “[i]n 2022, all of the former mainland China consolidated VIEs were divested along with the China Mainland Business or subsequently dissolved,” and that “[a]s of December 31, 2022, [you] did not have any variable interest entity in mainland China.” Provide early in this section, as you do on page 60, a diagram of the company’s corporate structure, identifying the person or entity that owns the equity in each depicted entity, and identify clearly the entity in which investors hold their interest and the entity(ies) in which the company’s operations are conducted. Describe any contracts or arrangements between the offshore and onshore companies, including those that affect the manner in which you operate or impact your ability to control your subsidiaries. Discuss the impact of the divesting of your VIEs on your business operations, to the extent material.
With respect to the impact of the divesting of the former consolidated mainland China VIEs on the Company’s business operations, the Company respectfully submits to the Staff that in response to the Alleviating Burden Opinions promulgated on July 24, 2021 and its implementation measures, the Company ceased providing K-12 online tutoring servi
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filename1.htm
51TALK ONLINE
EDUCATION GROUP
24 Raffles Place
#17-04 Clifford Centre,
Singapore 048621
September 5,
2023
VIA EDGAR
Ms. Jennifer Gowetski
Mr. Christopher Dunham
Mr. Joel Parker
Mr. Scott Stringer
Ms. Taylor Beech
Ms. Jennie Beysolow
Division of Corporation Finance
Office of Trade & Services
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
RE: 51Talk Online Education Group (the “Company”)
Form 20-F for Fiscal Year Ended December 31, 2022
Filed April 6, 2023
File No. 001-37790
Dear Ms. Gowetski, Mr. Dunham, Mr. Parker,
Mr. Stringer, Ms. Beech and Ms. Beysolow:
This letter sets forth the Company’s response
to the comments contained in the letter dated August 7, 2023 from the staff (the “Staff”) of the Securities and
Exchange Commission (the “Commission”) regarding the Company’s annual report on Form 20-F for the fiscal
year ended December 31, 2022 filed with the Commission on April 6, 2023 (the “2022 Form 20-F”). The
Staff’s comments are repeated below in bold and followed by the Company’s responses thereto. All capitalized terms used but
not defined in this letter shall have the meaning ascribed to such terms in the 2022 Form 20-F.
Form 20-F for the Fiscal Year Ended
December 31, 2022
Item 3. Key Information, page 4
1. Please revise to disclose prominently that you are not a Chinese operating company but a Cayman Islands holding company with operations
conducted by your subsidiaries based in China and Hong Kong, and that this structure involves unique risks to investors. Your disclosure
should acknowledge that Chinese regulatory authorities could disallow this structure, which would likely result in a material change in
your operations and/or a material change in the value of your securities, including that it could cause the value of such securities to
significantly decline or become worthless. Provide a cross-reference to your detailed discussion of risks facing the company as a result
of this structure.
Division of Corporation Finance
Office of Trade & Services
Securities and Exchange Commission
September 5, 2023
Page 2
The Company respectfully submits to the Staff that the Company
conducts its business operations through its offshore subsidiaries, including its Hong Kong subsidiaries, as well as its subsidiaries
in mainland China. The Company only conducts part of its operations, which solely pertains to research and development, administration
and sales and marketing, through its wholly-owned mainland China subsidiaries. As advised by the Company’s PRC legal counsel, Shihui
Partners, although the Company’s mainland China subsidiaries are subject to certain PRC regulations related to foreign investment
and foreign exchange, there is no material risk as to that the PRC government would entirely disallow the Company’s current structure,
namely that the Company, a Cayman Islands holding company, conducts part of its operations, which solely pertains to research and development,
administration and sales and marketing, through its wholly-owned subsidiaries in mainland China. In light of the foregoing, in response
to the Staff’s comment, the Company respectfully proposes to revise the referenced disclosure as follows (page reference is
made to the 2022 Form 20-F to illustrate the approximate location of the disclosure) in its future Form 20-F filings (with deletions
shown as strike-through and additions underlined), subject to updates and adjustments to be made in connection with any material development
of the subject matter being disclosed:
Page 4
ITEM 3. KEY INFORMATION
Our Holding Company Structure
51Talk
Online Education Group is not an operating company but a Cayman Islands holding company. We conduct our business operations through our
offshore subsidiaries, including our Hong Kong subsidiaries, as well as our subsidiaries in mainland China. We conduct part of our operations,
which solely pertains to research and development, administration and sales and marketing, through our mainland China subsidiaries. Investors
in our ADSs are purchasing equity interest in a holding company incorporated in the Cayman Islands instead of equity interest in our operating
subsidiaries. This structure involves unique risks to investors who hold our ADSs. For example, as a holding company, our mainland China
subsidiaries are subject to regulations on loans to, and direct investment in, mainland China entities by offshore holding companies.
For a detailed description of risks related to having operations in China, see “Item 3. Key Information—D. Risk
Factors—Risks Related to Our Global Operations—PRC regulation on loans to, and direct investment in, mainland China entities
by offshore holding companies and governmental control in currency conversion may delay or prevent us from using the proceeds of our equity
offerings to make loans to our mainland China subsidiaries or make additional capital contributions to our mainland China subsidiaries,
which could materially and adversely affect our liquidity and our ability to fund and expand our business.”
Division of Corporation Finance
Office of Trade & Services
Securities and Exchange Commission
September 5, 2023
Page 3
2. Please further expand your disclosure about the legal and operational risks associated with being based in or having the majority
of the company’s operations in China. Your disclosure should make clear whether these risks could result in a material change in
your operations and/or the value of your securities or could significantly limit or completely hinder your ability to offer or continue
to offer securities to investors and cause the value of such securities to significantly decline or be worthless. Your disclosure should
address how recent statements and regulatory actions by China’s government, such as those related to data security or anti-monopoly
concerns, have or may impact the company’s ability to conduct its business, accept foreign investments, or list on a U.S. or other
foreign exchange. Include a cross-reference to each individual risk factor.
In response to the Staff’s comment, the Company respectfully
proposes to revise the referenced disclosure as follows (page reference is made to the 2022 Form 20-F to illustrate the approximate
location of the disclosure) in its future Form 20-F filings (with deletions shown as strike-through and additions underlined), subject
to updates and adjustments to be made in connection with any material development of the subject matter being disclosed:
Page 4
ITEM 3. KEY INFORMATION
Our Holding Company Structure
. . .
We
face various legal and operational risks and uncertainties associated with having part of our operations in China and the complex and
evolving PRC laws and regulations. For example, we face risks associated with regulations on loans to, and direct investment in, mainland
China entities by offshore holding companies. These risks could result in a material adverse change in our operations and the value of
our ADSs or cause the value of such securities to significantly decline or become worthless. For more details, see “Item 3. Key
Information—D. Risk Factors—Risks Related to Our Global Operations—PRC regulation on loans to, and direct
investment in, mainland China entities by offshore holding companies and governmental control in currency conversion may delay or prevent
us from using the proceeds of our equity offerings to make loans to our mainland China subsidiaries or make additional capital contributions
to our mainland China subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business.”
The PRC government has recently
implemented industry-wide regulations, including data security and anti-monopoly related regulations. After the divestiture of the
China Mainland Business, we have ceased selling our service offerings in mainland China and only conduct part of our operations in
mainland China, thereby regulations in this nature or regulatory actions related to the PRC Enterprise Income Tax Law do not have a
material impact to our ability to conduct our business, accept foreign investments, or list on a U.S. or other foreign
exchange.
Division of Corporation Finance
Office of Trade & Services
Securities and Exchange Commission
September 5, 2023
Page 4
3. Please revise to discuss the legal and operational risks associated with having operations in Hong Kong. Discuss any applicable
laws and regulations in Hong Kong and the risks and consequences to the company. As an example, disclose how regulatory actions related
to data security or anti-monopoly concerns in Hong Kong and China's Enterprise Tax Law have or may impact the company’s ability
to conduct its business, accept foreign investment or list on a U.S./foreign exchange. Include risk factor disclosure explaining whether
there are laws/regulations in Hong Kong that result in oversight over data security, how this oversight impacts the company’s business
and the offering, and to what extent the company believes that it is compliant with the regulations or policies that have been issued.
The Company respectfully submits to the Staff that the proposed
revision with respect to the regulatory actions related to China’s Enterprise Tax Law is included in the Company’s response
to Comment # 2.
In response to the Staff’s comment, the Company respectfully
proposes to revise the referenced disclosure as follows (page reference is made to the 2022 Form 20-F to illustrate the approximate
location of the disclosure) in its future Form 20-F filings (with deletions shown as strike-through and additions underlined), subject
to updates and adjustments to be made in connection with any material development of the subject matter being disclosed:
Page 4
ITEM 3. KEY INFORMATION
Our Holding Company Structure
. . .
In
addition, as we conduct operations in Hong Kong, we face legal and operational risks under a variety of laws and regulations in Hong Kong,
such as laws and regulations related to data privacy and cybersecurity, anti-monopoly and education. As of the date of this annual report,
regulatory actions related to data security or anti-monopoly concerns in Hong Kong have not had a material impact on our ability to conduct
business, accept foreign investment in the future or continue to list on a United States or other foreign stock exchange. For more details,
see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—Our business
generates and processes a large amount of data, and we are required to comply with applicable laws relating to privacy and cybersecurity.
The improper use or disclosure of data could have a material and adverse effect on our business and prospects” and “Item 3.
Key Information—D. Risk Factors—Risks Related to Our Global Operations—We provide our course offerings to our students
in Hong Kong and are subject to laws, rules and regulations governing the accessibility and content of our course offerings, such
as the Education Ordinance and anti-discrimination laws. Non-compliance with the relevant laws and regulations regarding our operations
in Hong Kong may materially and adversely affect our reputation, business operations and prospects.”
Division of Corporation Finance
Office of Trade & Services
Securities and Exchange Commission
September 5, 2023
Page 5
Page 12
Our business generates and processes a large amount
of data, and we are required to comply with applicable laws relating to privacy and cybersecurity. The improper use or disclosure of data
could have a material and adverse effect on our business and prospects.
Our business generates and processes a large quantity of
data. We face risks inherent in handling and protecting large volume of data. In particular, we face a number of challenges relating to
data from transactions and other activities on our platforms, including:
· protecting the data in and hosted on our system, including against attacks on our system by outside parties or fraudulent behavior
or improper use by our employees;
· addressing concerns related to privacy and sharing, safety, security and other factors; and
· complying with applicable laws, rules and regulations relating to the collection, use, storage, transfer, disclosure and security
of personal information, including any requests from regulatory and government authorities relating to these data.
As all of our servers and routers, including backup servers,
are currently hosted by third-party service providers in Singapore, we are, with regards to privacy legislation, subject principally to
the Singapore Personal Data Protection Act 2012 which provides a baseline standard for the protection of personal data in Singapore. See
“Item 4. Information on the Company—B. Business Overview—Government Regulations—Singapore Regulations.”
Similarly, there are personal data protection laws and regulations imposed on our group companies in each of the jurisdictions that we
operate in. For example, we have obligations under Hong Kong’s Personal Data (Privacy) Ordinance (Chapter 486 of the Laws of Hong
Kong) or PDPO, and Malaysia’s Personal Data Protection Act. In particular, the PDPO applies to data users that control the collection,
holding, processing or use of personal data in Hong Kong. We are subject to the general requirements under the PDPO, including the requirements
to obtain the prescribed consent of data subjects and to take all practicable steps to protect the personal data held by data users against
unauthorized or accidental access, loss or use. Non-compliance with the PDPO may lead to a variety of civil and criminal sanctions including
fines and imprisonment. In addition, data subjects have a right to bring proceedings in court to seek compensation for damage caused by
a contravention of the PDPO. We have taken various measures to guard against unauthorized access or use of data collected from users or
accidental data leak. As of the date of this annual report, we have not received any warning, penalty, administrative punishment from
relevant authorities in Hong Kong as a result of violations of applicable laws and governmental policies including the PDPO, nor have
received requests from governmental authorities to improve our online platform to enhance protection over personal data.
Division of Corporation Finance
Office of Trade & Services
Securities and Exchange Commission
September 5, 2023
Page 6
4. We note your disclosure on page 4 that “[h]istorically, [you] conducted [y]our business in mainland China primarily
through [y]our mainland China subsidiaries and former mainland China consolidated VIEs,” “[i]n 2022, all of the former mainland
China consolidated VIEs were divested along with the China Mainland Business or subsequently dissolved,” and that “[a]s of
December 31, 2022, [you] did not have any variable interest entity in mainland China.” Provide early in this section, as you
do on page 60, a diagram of the company’s corporate structure, identifying the person or entity that owns the equity in each
depicted entity, and identify clearly the entity in which investors hold their interest and the entity(ies) in which the company’s
operations are conducted. Describe any contracts or arrangements between the offshore and onshore companies, including those that affect
the manner in which you operate or impact your ability to control your subsidiaries. Discuss the impact of the divesting of your VIEs
on your business operations, to the extent material.
With respect to the impact of the divesting of the former
consolidated mainland China VIEs on the Company’s business operations, the Company respectfully submits to the Staff that in response
to the Alleviating Burden Opinions promulgated on July 24, 2021 and its implementation measures, the Company ceased providing K-12
online tutoring servi