Byju's and its lenders missed an August 3 timeline to rework terms on a $1.2-billion loan, prolonging the uncertainty that has engulfed India’s most valued startup.
Sources familiar said the talks for the loan amendment are progressing “in the right direction,” but the two parties have not been able to reach a conclusion yet. While the lenders wanted an amendment before August 3, Byju’s had never committed to any such date, the people said, requesting anonymity. Byju Raveendran has a call with the lenders next week and the two parties are hopeful of an outcome.
“The discussions are going on and it's progressing well in the right direction and expected to close at the earliest. In fact, the next meeting with the lenders is scheduled early next week. No deadline has been missed as August 3rd was merely a hopeful date that was likely to be scheduled for a sign-off,” a spokesperson for Byju’s said.
Byju’s lenders did not respond to queries.
The timeline for reaching an amendment was formally announced on July 24 by a steering committee of ad hoc term loan lenders who collectively own more than 85 percent of Byju’s $1.2-billion term loan. The committee had said that it and the company agreed to work collaboratively toward a signed and completed term loan amendment (the “Amendment”) prior to August 3, 2023.
“Successful execution of the amendment would immediately solve for the loan’s acceleration and end all open litigation while avoiding further enforcement actions,” the lenders had said in the statement.
The background
Byju's had raised $1.2 billion in debt via term loan B (TLB) in November 2021 from a clutch of overseas investors. TLB refers to a tranche of senior secured syndicated credit facility from global institutional investors. Conventionally, TLB proceeds are used either to refinance the existing debts by a company or to make overseas acquisitions with an aim to enhance their offerings.
But since December last year, the company has been in a tiff with its lenders. In March, the lenders first accelerated the TLB on account of certain alleged non-monetary and technical defaults and later in May, the lenders sued the company's wholly-owned subsidiary Byju's Alpha Inc in the Delaware Court on allegations of hiding $500 million from them.
A few weeks later, Byju's sued the lenders in the New York Supreme Court, challenging the acceleration of the TLB. It also skipped paying $40 million in interest that was due post the acceleration. Since then, the two parties have had multiple calls to reach an amendment.
The probable amendment was seen as a key milestone in the negotiations and a delay in reaching an amendment could make it even more difficult for Byju's to raise new funds, which it needs to tide over an immediate liquidity crunch.
Already, Davidson Kempner, a US-based investor, which lent Byju’s $250 million in structured instruments in May, held back close to $150 million as the company’s talks with its lenders did not progress well. Economic Times first reported the development in June.
Further, Byju’s also had a technical default on the Davidson Kempner loan, prompting Byju Raveendran to raise funds to repay it to avoid losing control of his most valuable asset, Aakash Educational Services. Byju’s had offered Aakash’s shares as collateral for the Davidson Kempner loan.
Byju’s is now exploring a fundraising from one of its earliest backers, Ranjan Pai, for Aakash Edcuational Services. Pai is expected to buy out a part of Byju Raveendran’s stake in Aakash, Moneycontrol reported earlier this week. Raveendran holds close to 30 percent stake in Aakash.
Corporate rejig
According to a report in the Economic Times on August 4, Davidson Kempner has begun rejigging the board of Aakash and has inducted four new members.
Mrinal Mohit, the chief operating officer of Byju’s, Anita Kishore, chief strategy officer of Byju’s, and Divya Gokulnath and Riju Ravindran, the two co-founders of Byju’s, have stepped down from the Aakash’s board, the report said. However, the company is yet to file anything regarding this with the Ministry of Corporate Affairs (MCA).
If the funding led by Ranjan Pai goes through, it will bring much-needed relief to Byju's, which is presently facing several challenges. These challenges include immediate liquidity constraints caused by a prolonged fundraising process for its parent company, Think and Learn Pvt.
Moreover, the funding effort reflects Raveendran's intention to tackle his debts while also welcoming reliable equity investors to become part of the company's ownership.
Byju's has been actively engaged in a substantial fundraising campaign since the start of the year. However, they have encountered difficulties in concluding the funding round. As a result, the company had to resort to implementing several cost-cutting measures, including laying off more than 2,000 employees, deferring appraisals, and giving up office spaces.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
