 "Byju's")
The legal battle between Byju’s and lenders in the US on the edtech firm’s $1.2-billion term loan B (TLB) is expected to adversely affect its fund raising, including debt, loan, and equity, according to industry sources and experts.
They said this might delay the initial public offering (IPO) for its tutoring service subsidiary Aakash Educational Services (AESL). AESL is eyeing an IPO by next year.
Byju’s has filed a suit against US-based investment management firm Redwood, challenging the acceleration of the $1.2-billion TLB facility and to disqualify the lender for its “predatory tactics”, the edtech major said recently.
Byju’s also skipped an interest payment of about $40 million on the loan, thus becoming the only Indian start-up to have defaulted on a US-dollar loan.
“Raising debt and equity in the future is going to be an uphill task for Byju’s. Whenever there is a payment crisis, companies are not able to pay due to various reasons like they don’t have the intention, they don’t have money, and they don’t have the process to pay,” said Shantanu Rooj, founder and chief executive officer, TeamLease Edtech, a leading learning and employability solutions company that works with universities and companies.
Byju’s, which filed the suit in the New York Supreme Court, said contrary to the conditions of the loan, Redwood purchased a significant portion of it while primarily trading in distressed debt.
According to company sources, the lenders need to send the interest invoice but it has not come to the company.
They said the firm had told the lenders the latest payment would be made, and that it had substantial cash reserves.
“The company has written to the lenders that it can pay the interest at any time, but they first need to remove the acceleration of the $1.2-billion TLB as well as litigation in Delaware court,” said a person familiar with the matter.
Earlier the Bengaluru-headquartered company’s US entity Byju’s Alpha was recently sued in Delaware by an agent of lenders to whom the company owes $1.2 billion. This happened after months of negotiation between creditors and the edtech. The lawsuit was filed by GLAS Trust Company and investor Timothy R Pohl against Byju’s Alpha, Tangible Play (Osmo), and Riju Raveendran. The two companies being sued are units of Think and Learn Private, an edtech firm founded by Byju Raveendran.
The lenders have reportedly accused the company’s entity, which has no employees, of hiding $500 million as part of a battle between the creditors and the edtech firm. The allegation was made during a court hearing this month in Delaware, where Alpha faces a lawsuit over who should control the firm. The lenders claim that because of a default earlier this year, they have the right to put their representative, Timothy R Pohl, in charge. Byju’s recently said a court in Delaware had given an interim order asking the edtech firm to maintain the status quo with Byju’s Alpha, an inoperative US entity set up to receive a loan, but rejected as “bewildering” the claims made by litigants.
“Over a long period of time, action on a loan not taken in a duly diligent and cautious manner affects the grading of the company as well as its reputation and goodwill to raise any kind of debt or equity in the future,” said a Supreme Court lawyer.
Such legal battles are also taking place at a time when Byju’s has closed a Rs 2,000-crore ($250 million) round from Davidson Kempner Capital Management, a US-based investment firm, in a structured instruments deal, according to people familiar with the matter. This is part of an ongoing $1-billion funding round the firm is raising in a mix of equity and structured instruments at its current valuation of $22 billion. The new funding round is also expected to help Byju’s meet its financing needs amid a funding winter and pay a portion of the $1.2-billion term loan B the company raised in 2021, according to sources. They said the firm was planning a Rs 8,000-crore IPO of its subsidiary, AESL, acquired by Byju’s for $1 billion in 2021.
“However in May itself US asset manager BlackRock, for the second time in recent months, wrote down Byju’s valuation to $8.2 billion, and this could (also) impact the proposed IPO next year,” said Salman Waris, managing partner at technology law firm TechLegis Advocates & Solicitors.
Waris said there had been concern relating to delayed financial results and the ongoing Enforcement Directorate (ED) probe. Byju’s is yet to file its 2021-22 (FY22) results with the Ministry of Corporate Affairs (MCA). The company should have filed its annual results with the MCA by September last year, he said.
Byju’s filed its 2020-21 results in September 2022, after a nearly 18-month delay. He said Byju’s posted losses of Rs 4,588 crore in FY21, 19 times more than in the preceding year.
Byju’s has raised $6 billion from investors like the Qatar Investment Authority, BlackRock, Chan Zuckerberg Initiative, Sequoia, Silver Lake, Bond Capital, Tencent, General Atlantic, and Tiger Global.
