Edtech company Byju's has to get $1.2-billion term loan rated by August

Education technology (edtech) company Byju’s has decided to get its $1.2-billion term loan rated by August this year, failing which it will have to pay a higher rate of interest, informed sources in the know.
 

The term loan raised in the overseas market was unrated. But as part of the contract, the interest rate will go up if the company does not obtain credit ratings from at least two agencies — Fitch/S&P/Moody’s — within nine months of the deal closure. The deadline ends in August this year.
 

The decision to rate the loan comes close on the heels of the company going in for an initial public offering (IPO) in the next nine to 12 months. In what is the last private raise of $800 million, founder Byju Raveendran is raising ha­lf the money in a personal ca- pacity by pledging his shares. Sources say Raveendran plans to increase his stake in the start-up from 23 per cent to 25 per cent before the IPO. However, the quantum of shares he will be pledging for raising the loan is not clear yet.
 

However, analysts say that Byju’s moves stem from private equity funds being chary of putting in money liberally in a volatile market and instead pushing founders to lead future fund-raises or invest substantial amounts to help reinforce their commitment to the company.
 

The company last year had exhausted its limit for corporate guarantees which are capped at $1 billion per year, primarily to fund acquisitions overseas. But sources say that from April, that door will be open. A spokesperson for Byju’s, however, declined to comment on the issue.    
 

A fresh fund-raise will increase the company’s valuation to $22 billion. However, the company is looking at listing in the country or in the US through a special purpose acquisition company (SPAC), which had valued the company at $45-50 billion. But with the SPAC market in the US in turmoil, analysts say that valuations could be very different. The $1.2-billion loan is for a period of five years from the overseas market and it had raised the loan at London Interbank Offered Rate (LIBOR) plus 550, which is far lower than what was available in the domestic market.
 

But in case the loan is not rated in nine months, there is a margin step-up at LIBOR plus 600.
 

As the world’s largest edtech company (in terms of valuation) and the only Indian start-up in the top 20 most-valued unicorns, the company has gone through a series of acquisitions in India, the US, and Australia to consolidate its business.