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Edtech major Byju's lenders discard talks to restructure $1.2-billion loan

Lenders may put pressure on Byju's to liquidate US assets to part-repay

Byju's

Peerzada Abrar Bengaluru
Creditors to Byju’s have reportedly pulled out of negotiations with the educational technology (edtech) giant to recast a $1.2-billion loan. This is posing a new setback to India’s most valuable start-up, according to a Bloomberg report, which has quoted sources.

The talks were called off after creditors moved court, accusing the firm of hiding $500 million of funds raised. Lenders can now sell the Term Loan B securities of the firm as the restraint that came as part of the negotiations is lifted, according to the report. Byju’s has to pay interest on the loan by June 5.

This is a new challenge for Byju’s as the company had proposed to rework its debt by increasing the interest rate on the $1.2 billion term loan due 2026, according to sources.
 

They said the creditors may put pressure on the company to liquidate its assets in the US 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, Byju’s may reach out to all lenders independently to renegotiate the terms.

“The moment the lenders sued the company in the US court, it became clear that they are not looking at renegotiations,” said a person familiar with the matter, adding, “The creditors may ask the company to liquidate the US assets. They believe that Byju’s is holding a large part of the funds raised in its US entities.”

Earlier the lenders had hired Houlihan Lokey, Inc., a global investment bank that focuses on mergers and acquisitions, to advise them on amending covenants after Byju’s allegedly breached terms, according to sources.

“The transfer of borrowed funds was in full compliance of the loan agreement and did not contravene any terms of the agreed-upon rights and responsibilities," said a spokesperson for Byju’s on Thursday.

“Even lenders have not alleged that the transfer was not permitted under parties’ existing contractual arrangement,” said the spokesperson.

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 negotiations between creditors and the edtech. The lawsuit was filed by GLAS Trust Company and investor Timothy R Pohl against Byju’s Alpha, Tangible Play, and Riju Raveendran. The two companies being sued are units of Think and Learn Private, edtech firm founded by Byju Raveendran.

Lenders have reportedly accused the company’s entity, which has no employees, of hiding $500 million as part of a battle between 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.

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 Delaware court gave 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, and refuted the claims by litigants as “bewildering”.

Byju’s is raising Rs 2,000 crore ($250 million) 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 a valuation of $22 billion. Around $700 million of $1 billion is expected to come through equity, for which Byju’s is in talks with existing and new investors. These include investors like Abu Dhabi’s sovereign wealth fund ADQ.

Another challenge is that the Enforcement Directorate recently conducted search and seizure operations at three premises of Byju’s under the Foreign Exchange Management Act (FEMA). These searches allegedly revealed that the company received foreign direct investments of about Rs 28,000 crore between 2011 and 2023.

Byju’s has made several overseas acquisitions (investing an amount of approximately Rs 9,000 crore) over the years as part of its growth strategy.

Also, Byju’s was expected to file its 2021-22 (Fy22) results with the Ministry of Corporate Affairs (MCA). Other edtech unicorns, such as Unacademy, upGrad, Vedantu, PhysicsWallah, and Eruditus, have already filed their FY22 financials. The company should have filed its annual results with the MCA by September last year. But, it has been delayed for over seven months now. Before this, the company filed its 2020-21 results in September 2022, after a nearly 18-month delay.

Interestingly, US asset manager BlackRock has again reduced the valuation of its share in Byju’s — this time to about $8.4 billion, according to its filing with the Securities and Exchange Commission for the March quarter.

Byju’s latest valuation, as estimated by BlackRock, is around 62 per cent down from the peak of $22 billion in April 2022. Before this, BlackRock had reduced the start-up’s valuation to $11.5 billion (as of December 31, 2022).

With inputs from Bloomberg

Topics : Byju's

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First Published: Jun 01 2023 | 10:10 PM IST

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