Byju's settles dispute with Davidson Kempner as Ranjan Pai buys out debt in Rs 1,400-cr transaction

Ranjan Pai

In what comes as a huge sigh of relief for embattled edtech Byju's, Manipal Education and Medical Group chairman Ranjan Pai has bought out the debt investment of Davidson Kempner, linked with covenants on its subsidiary Aakash, in a Rs 1,400-crore deal, according to sources aware of the developments.

The transaction closed earlier today (November 10), the sources said. In addition, Pai also gets a board seat, apart from the right to nominate two people on the Aakash board. Its board currently has 6 members, including two representatives from Kempner, who will exit.

An entity of Pai purchased all the NCDs of Davidson Kempner on NSE CBRICS platform, putting an end to the longstanding troubles between the edtech and investment management firm Davidson Kempner.

This follows a technical default by the company on the $250 million loan it raised from the firm in May. But the beleaguered edtech did not meet certain covenants of the agreement, prompting Davidson Kempner to hold back more than half of the amount and only paying about $100 million (Rs 800 crore).

US hedge fund Kempner, which held 15-20 percent of Aakash via pledges, will transfer its holding to Pai as part of the transaction reported today, sources added.

Of the Rs 1,400 crore paid to Kempner, Rs 800 crore was the loan amount and 600 crore was interest, sources said, thus earning it a 75% return.

Over the next few weeks, Pai will also buy out part of Aakash's promoters stake in the company, as well as Blackstone which is expected to exit the test prep firm. This will take his effective shareholding in Aakash to nearly 30 percent.

Aakash's promoters, the Chaudhry family, still hold 18-20% in Aakash. One fourth of this stake will be sold to Ranjan Pai at a valuation of $10 Billion, one fourth will be converted to TLPL shares (Byju's parent Think and Learn) while the family will retain the rest. Pai will also buy out Blackstone's remaining stake.

Aakash Chaudhry will return as CEO after the partial stake sale and share swap is completed.

Ultimately, TLPL will hold 51% in Aakash, Byju Raveendran will have 8-10%, Chaudhry 9-10% , with the balance held by Ranjan Pai. All these transactions will need approvals from the Competition Commission of India

Moneycontrol was the first to report that Pai, chairman of Manipal Group, one of the edtech’s early investors, is in talks to invest in Byju’s owned Aakash, to help  in August this year.

Pai had first invested in Byju’s in 2011 through his venture capital fund Aarin Capital, acquiring about a third of the company then. Aarin had eventually exited the company with bumper returns over the years, as Byju’s raised over $5 billion over the past decade.

A seasoned entrepreneur and investor, Pai recently gave up a controlling stake in his chain Manipal Hospitals to Singapore’s Temasek, in what was the largest deal ever by a private equity fund in India’s healthcare sector. He also runs the Manipal group of educational institutions.