'Byju's now worth zero': HSBC warns Prosus amid legal, financial troubles

Worsening legal challenges and severe cash crunch attributed as reasons by HSBC for Prosus' $500 million investment going to zero value in Byju's

Financial firm HSBC has cast significant doubt on the future of Indian edtech giant Byju's, assigning zero value to Prosus' nearly 10 per cent stake in the company. This stark evaluation comes amidst Byju's ongoing legal battles and deepening financial troubles.

Prosus, a Dutch-listed technology investment company, has invested $500 million in Byju's, marking one of its largest edtech bets in India, which has now soured.

In a note to investors on May 21, HSBC highlighted several factors contributing to their pessimistic outlook.

"We assign zero value to Byju’s stake amid multiple legal cases and funding crunch," HSBC stated. “Previously, we valued around 10 per cent stake in Byju’s by applying an 80 per cent discount to the latest publicly disclosed valuation.”

Byju's faces a grim situation with legal woes and a severe cash crunch. The HSBC report coincides with Byju's controversial $200 million rights issue, which is priced at a 99 per cent discount to its peak valuation of $22 billion.

Investors who do not participate in the rights issue risk having their holdings wiped out. Although founder Byju Raveendran claims the rights issue is fully subscribed, the National Company Law Tribunal (NCLT) in Bengaluru has directed the company to keep the majority of the capital from the rights issue in an escrow account due to an ongoing dispute with investors, including Prosus.

Legal challenges for Byju’s

Adding to the turmoil, Byju's has initiated legal action against Prosus and other investors, seeking the removal of CEO Raveendran. This case in the Karnataka High Court adds another layer of complexity to the situation.

Both the cases in NCLT Bengaluru and the Karnataka High Court are ongoing, further increasing the legal troubles for the Peak XV Partners-backed company.

Byju's is also grappling with operational challenges due to a severe cash crunch. The departure of India CEO Arjun Mohan in April this year has left Raveendran handling daily operations of the Indian business.

Furthermore, Byju's is embroiled in legal battles in the US over a $1.2 billion term loan B. On June 5, a group of lenders petitioned a US court to initiate bankruptcy proceedings against Byju's subsidiaries Epic, Tynker, and Osmo, which were guarantors for the syndicated term loan.