Litigants' claims in US court over loan to entity 'bewildering': Byju's

Edtech giant says creditors claim about hiding $500 million 'entirely incorrect'

Peerzada Abrar Bengaluru

Byju’s said on Friday a court in Delaware has given an interim order asking the edtech giant to maintain status quo with Byju’s Alpha, an inoperative US entity set up to receive a loan, but rejected as "bewildering" claims made by litigants.
Lenders have reportedly accused Byju’s Alpha, which has no employees, of hiding $500 million as part of a battle between creditors and the edtech giant. The allegation was made during a court hearing on Thursday 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.

“The litigants have made bewildering claims that Byju’s 'moved' $500 million from Byju’s Alpha, insinuating that these acts were somehow wrongful,” said Byju’s legal team. “This is entirely incorrect. We categorically deny these allegations. The transfers were in full compliance of and did not contravene any terms of the parties’ Credit Agreement and the agreed-upon rights and responsibilities.  In fact, even lenders have not alleged that the transfer was not permitted under parties’ existing contractual arrangement.”
As Alpha is a non-operative entity, Byju’s said the funds were transferred to other operative entities for growth and global expansion. Byju’s said it entered into a Term Loan B agreement with the clear intention of utilising the raised funds to drive growth and expansion in its global operations and is free to transfer and use the funds as necessary.

Additionally, Byju’s said it has fulfilled all its contractual payment obligations as agreed upon in the Term Loan B signed in 2021 and has not missed a single payment.
“There have been no monetary defaults under the loan,” said Byju’s. “The lenders' allegations (which also we dispute) concern merely insignificant technical and non-monetary defaults.”

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The company said the order does not have any bearing on any other subsidiary of Byju’s anywhere in the world. “Further, this is a temporary order and the Court has not made any final determination against Byju’s Alpha, including in relation to the transfer,” said Byju’s.
Byju’s Alpha was sued by an agent for lenders who are 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 Poh, Tangible Play, 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 is the business behind Osmo, the US-based educational gaming company Byju’s bought in 2019 for $120 million in a stock-and-cash deal.
“In the face of unrealistic and unacceptable terms being demanded by a collective of lenders engaged primarily in opportunistic trades, we remain steadfast in our pursuit of a fair and equitable resolution through good-faith negotiations,” said Byju’s legal team. “Our unwavering commitment to meeting all our financial obligations is demonstrated by our impeccable track record of consistently honouring timely payments.”

Earlier this year Byju’s 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 restructure the $1.2 billion term loan.
Last year in December, a group of creditors asked Byju’s 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 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, according to the sources. They said the firm is also planning an Rs 8,000-crore initial public offering (IPO) of its subsidiary, Aakash. Aakash was acquired by Byju’s for $1 billion in 2021.

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

First Published: May 19 2023 | 1:04 PM IST

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