Edtech major Byju's sued by an agent connected to its $1.2 billion loan

Tech company Byju’s Alpha, was sued by an agent for lenders owed $1.2 billion after months of negotiations between creditors and the education technology firm, according to a Bloomberg report.

The lawsuit was filed by Glas Trust Company and investor Timothy R. Pohl against Byju’s Alpha, Tangible Play, Inc. and Riju Ravindran. The two companies being sued are units of Think and Learn Private, the edtech giant founded by Byju Raveendran. The case is Glas Trust Company vs Riju Ravindran, 2023-0488, Delaware Chancery Court (Wilmington).

Riju Ravindran is a director of Think and Learn Private Limited, according to a regulatory filing.

Tangible Play Inc., is  the business behind the Osmo brand. In 2019, the Byju’s bought US-based educational gaming company Osmo for $120 million in a stock-and-cash deal.

“Details about why the case was filed and what Glas Trust and Pohl want have been redacted from court documents,” according to the Bloomberg report. “One filing indicates that the lawsuit may be related to a fight over the election of directors, but does not include any specific allegations.”

A judge in Wilmington, Delaware — where the lawsuit was filed earlier this month — scheduled a hearing by telephone Thursday to decide whether the case should be expedited. The report said that Delaware Chancery Court Judge Morgan Zurn denied Ravindran’s and Byju’s request to close Thursday’s hearing to the public.

A query to the company remained unanswered till press time.

Earlier this year Byju’s reportedly sought more time from lenders to renegotiate an agreement governing a $1.2 billion loan that is in breach of covenants, according to people familiar with the matter. The lenders also pushed back against a company proposal to rework its debt by increasing the interest rate on the $1.2 billion term loan due 2026.

Last year in December, a group of creditors of Byju’s told the edtech giant to liquidate its assets in the USA worth about $500-800 million to repay a part of a $1.2-billion loan if the firm is not able to provide the money from its cash reserves, according to sources in the know. If Byju’s cannot repay or is unable to liquidate the US assets, the creditors had mentioned that they could take legal action, said people familiar with the matter. The lenders had hired Houlihan Lokey, a global investment bank that focuses on mergers and acquisitions, to advise them on amending covenants after Byju’s allegedly breached terms, according to the sources.

The lawsuit has come 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 Bengaluru-based firm is raising in a mix of equity and structured instruments at its current valuation of $22 billion.

The new funding round is 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 that the company raised in 2021.

The firm is also planning an Rs 8,000-crore initial public offering (IPO) of its subsidiary, Aakash, according to sources. Aakash was acquired by Byju’s for $1 billion in 2021.

The lawsuit has also come at a time when the Directorate of Enforcement (ED) recently conducted search and seizure operations at three premises of Byju’s under the Foreign Exchange Management Act (FEMA).

The searches also revealed that the company allegedly received foreign direct investment of about Rs 28,000 crore between 2011 and 2023. Byju’s has made a number of overseas acquisitions (investing an amount of approx. Rs. 9,000 crore) over the years as part of its growth strategy.

Byju’s has raised $5.8 billion in total from investors like Qatar Investment Authority (QIA), Sumeru Ventures, Vitruvian Partners, BlackRock, Chan Zuckerberg Initiative, Sequoia, Silver Lake, Bond Capital, Tencent, General Atlantic and Tiger Global. The firm has over 150 million learners.

The US-based asset manager BlackRock recently reduced the valuation of the Byju’s by about 50 per cent to $11.5 billion. This is a sharp decrease from the $22 billion at which the Bengaluru-based edtech decacorn was last valued in 2022. Byju’s posted losses of Rs 4,588 crore in FY21, 19 times more than the preceding year, according to the latest available financial report. Byju’s, valued at $22 billion, was targeting to be profitable by March this year.

(With inputs from Bloomberg)