Byju's Hit as Lenders Discontinue Talks on $1.2 Billion Loan Restructuring
Byju's Faces Enforcement Directorate Probe and Potential Asset Liquidation Pressure
2 June 2023
Byju's lenders have abandoned talks to restructure the company's $1.2 billion loan amid allegations of concealing $500 million in funds through its US-based subsidiary, Byju's Alpha.
The discontinuation of negotiations allows the lenders to sell the securities related to the term loan B (TLB) issued by Byju's.
Byju's plans to independently engage with lenders to renegotiate the loan terms, while also facing scrutiny over its financial performance and valuation markdowns by investors, impacting its estimated valuation of around $8.4 billion.
Byju's, the prominent edtech company, is facing fresh challenges as its lenders have abandoned talks to restructure its $1.2 billion loan. This setback comes in the wake of the lenders taking legal action against Byju's, accusing the company of hiding $500 million through its US-based subsidiary, Byju's Alpha. As a result, the lenders can now sell the securities related to the term loan B (TLB) issued by Byju's.
The lenders accused Byju's of concealing $500 million in funds raised, leading to the discontinuation of loan restructuring negotiations. The lenders' steering committee decided to take legal action, which subsequently lifted the restraint that had been imposed during the negotiations. This development empowers lenders to sell TLB securities.
Although the lenders' steering committee has withdrawn from negotiations, Byju's intends to independently engage with all lenders to renegotiate the terms of the loan. Byju's lawyer stated in a US court that a significant capital infusion is imminent, assuring repayment of the loan. Byju's had previously fulfilled all its contractual payment obligations and claimed that the transfers were in full compliance with the credit agreement.
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Byju's recent financial performance has faced scrutiny, with a loss of Rs 4,564.38 crore in FY21, larger than the loss recorded in FY20. The company raised $250 million in fresh funding from Davidson Kempner Capital Management, part of a larger $1 billion investment round. However, recent valuation markdowns by investors, including BlackRock, have significantly impacted Byju's valuation, now estimated at around $8.4 billion.
The Enforcement Directorate conducted search and seizure operations at three premises of Byju's under the Foreign Exchange Management Act (FEMA). The investigations revealed foreign direct investments of approximately Rs 28,000 crore received by the company between 2011 and 2023. Creditors may put pressure on Byju's to liquidate its US assets worth about $500-800 million if the company fails to provide repayment from its cash reserves.
Byju's is yet to file its financials for FY22, causing delays and raising concerns. Other edtech unicorns have already filed their FY22 financials, highlighting Byju's lag in compliance. The challenges faced by Byju's have broader implications for the edtech industry, affecting investor confidence and the overall market perception.