Byju's in talks with investors to raise $300 mn in return for more controls

Shareholders call for board rejig so that they can have a bigger say in ops

With investors asking for a change in the board structure at Byju’s, the edtech giant’s founder and chief executive officer (CEO), Byju Raveendran, is now asking them to put $300 million into the company for more control.
 

The company has rung up $5.8 billion from investors such as General Atlantic, Sofina, the Qatar Investment Authority, Sumeru Ventures, Vitruvian Partners, BlackRock, Chan Zuckerberg Initiative, Seq­uoia, Silver Lake, Bond Capital, Tencent, and Tiger Global. “The shareholders have asked Raveendran to revamp the board so that they can have a bigger say in company operations. Raveendran has asked them to infuse about $300 million in return for more control in the firm,” said a person familiar with the matter. “Negotiations are on and a deal may materialise in a few months.”

The firm was unavailable to comment on the negotiations with investors. 

The funding is expected to help the cash-strapped firm meet financial commitments, run company operations, and settle legal disputes with lenders. Byju’s is also facing the challenge of significantly reducing its losses to establish a sustainable business model for the long term.

An alleged lack of internal control of how the firm manages its resources and accounting practices was a major topic of discussion during the company’s annual general meeting (AGM), held virtually on December 20. The meeting was attended by close to 60 shareholders. They pressed Raveendran for more transparency on the company financials and its latest state of affairs, according to sources.

Byju’s parent, Think & Learn, faced consolidated losses of about Rs 8,245 crore in FY22, according to the financials presented to the shareholders. This is an increase from the Rs 4,564 crore in the previous period. WhiteHat Junior, a coding startup acquired by Byju’s in 2020 for approximately $300 million and which had to be written off, has been a significant contributor to the losses, according to sources.

The firm earned consolidated revenues of over Rs 5,015 crore for the year, an increase from the Rs 2,280.2 crore in FY21. However, the firm missed the target revealed in September 2022, where it projected its gross revenues to grow to Rs 10,000 crore in FY22.

Think and Learn passed all the resolutions, including the accounts for financial year 2022, during its AGM.

The AGM had two items on its agenda: Considering and approving the standalone and consolidated financials for FY22, and approving the appointment of MSKA and Associates (BDO in India) as its auditor.

Byju’s has re-appointed accounting firm BDO its statutory auditor.

However, BDO officials were initially missing in the meeting. This angered the shareholders. They attended the meeting later, though they were not obliged to do so. They faced a barrage of questions from investors.

“The meeting was badly managed by the company,” said a person aware of the meeting. “The shareholders felt considering the challenges the company was facing, the auditors should have made an exception and participated in the meeting.” 

“The auditor BDO later addressed all questions from shareholders before the company concluded the interactive three-hour-long meeting,” Byju’s reported.

India CEO Arjun Mohan presented Byju’s 3.0 plan to the investors and shareholders. “This includes a significant focus on the hybrid model, offering both online and offline educational services,” said a person who attended the meeting.

Mohan discussed the company’s plan to enhance productivity, incorporating the latest developments in technology. The strategy centres on better monetising existing assets and expanding options across various price points and product ranges for potential Byju’s customers. The firm is also emphasising Byju’s tuition centres to generate cash profitably and advance hybrid education.

During the AGM, Raveendran gave an overview of the business’s current state and its challenges. This includes the issue of litigation surrounding Term Loan B (TLB), arising from a delayed audit and demands for a full refund from TLB lenders. Byju’s is negotiating with these lenders, and the challenge is expected to be resolved following the sale of Epic, a subsidiary in the US. This sale will also assist in addressing the liquidity crisis the company is facing.

Byju’s is embroiled in a dispute with lenders in the US over a missed interest payment on a $1.2 billion TLB. The company plans to sell two key assets — Epic and Great Learning — aiming to raise between $800 million and $1 billion to tackle its financial challenges, according to sources.

“Byju’s has also been moving over $500 million from its US entity to different locations to prevent it from being grabbed by the TLB lenders. “It is a cat and mouse game,” said a person familiar with the matter.

Another issue discussed at the AGM was litigation regarding the Davidson Kempner (DK) loan against Aakash Educational Services Ltd (AESL). This has been settled, with Manipal Education and Medical Group Chairman Ranjan Pai taking over the loan. Pai has invested $168 million (Rs 1,400 crore) in Byju’s test-prep subsidiary AESL and is in discussion to invest about $350 million in Byju’s in both equity and debt.

Nitin Golani, chief financial officer (India), Byju’s, briefed investors on the audit.

Think and Learn reported a 2.3-fold increase in its core business, achieving an income of Rs 3,569 crore for 2021-22, up from the Rs 1,552 crore in the prior year. The ebitda (earnings before interest, tax, depreciation, and amortisation) loss of the core business decreased from Rs 2,406 crore to Rs 2,253 crore, with a margin improvement from -155 per cent to -63 per cent, from FY21 to FY22.

The company’s financials are based on an “unqualified financial year 2022 audit”, indicating the auditor’s approval of its financial reporting.

Previously, the company aimed to become profitable by March 2023. However, it reported losses of Rs 4,588 crore for FY21, 19 times greater than those in the previous year.

Byju’s has delayed submitting its FY22 results to the Ministry of Corporate Affairs, lagging behind other edtech unicorns like Unacademy, upGrad, and Vedantu. This delay has raised concern among investors and lenders.

Netherlands-based tech investor Prosus NV has marked down Byju’s valuation to under $3 billion, an 86 per cent decrease from its peak valuation of $22 billion last year.

The Enforcement Directorate recently issued showcause notice of Rs 9,362 crore to Think & Learn and Raveendran for alleged violations of foreign exchange rules in attracting foreign investments from 2011 to 2023.
 

THE REVIVAL PLAN

• More transparency about company financials
• Better monetising of existing assets
• Focus on hybrid model
• Emphasis on tuition centres
• Bringing in latest tech developments