While Byju’s has volunteered to raise the interest rate by about 200 basis points (bps), it is yet to agree upon the prepayment clause put forth by the lenders, which include a number of US-based hedge funds, said the people.
A basis point is a hundredth of a percentage point.
ET had first reported on March 20 that the company’s founder, Byju Raveendran, has offered to increase the loan interest rate by 200-300 bps. The renegotiation was prompted by the delays in posting the company’s audited financials. Byju’s released its 2020-21 earnings only last year, after an 18-month delay, and is yet to make its results public for the year ended March 2022.
ETtech“The prepayment is becoming a sore point in negotiations, as a section of lenders is refusing to play ball. However, it is possible that the lenders may finally agree to reduce the quantum of prepayment,” said one of the persons, who did not wish to be identified.
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New funding to refinance part of debt
Another person aware of the discussions said Byju’s may use its new funding round to refinance some of its TLB debt though the number could be smaller.
“There was a discussion on a $200 million prepayment but it may end up being a smaller amount. Discussions are underway but the company is prioritising its funding deal to refinance some of its debt,” a person close to Byju’s said on condition of anonymity.
Meanwhile, the lenders also asked the company to provide fortnightly updates on its cash position, according to the people.
Byju’s currently holds $650 million in its overseas accounts and has about Rs 1,500 crore (nearly $183 million) parked in liquid funds in India, said people briefed on the matter.
ETtechByju’s is also in the advanced stages of closing a $600-700 million funding through a mix of equity and convertible notes. A couple of new investors as well as existing backers are expected to invest in this financing round. Through convertible notes, a company picks up a short-term debt that converts into equity at a later stage but no fresh valuation is ascribed to the firm. Such investors usually avail of a discount during the next funding round or a public issue.
The majority of the new capital is expected to be through equity funding at the same valuation of $22 billion, with the rest being in convertible notes linked to a future liquidity event, said the person cited earlier.
“Lenders have engaged investment bank Houlihan Lokey while Byju’s has appointed Rothschild & Co as advisor to steer the negotiations,” said the person, adding that the firm’s cash position has remained unchanged for the past few months.
This has given comfort to the lenders about the company’s ability to sustain operations without dipping into its reserves, said the person.
Queries emailed by ET to Byju’s remained unanswered till press time.
Byju’s was hoping it would close the new agreement for its TLB by March-end but discussions on some of the clauses mentioned earlier have led to a delay, said another person privy to the matter.
Byju’s is currently valued at $22 billion. It had closed a $250 million funding round in October last year, at the same valuation, as reported by ET.
“Byju’s is finalising the round after months of negotiations amid constant scrutiny on its corporate governance practices, besides enforcing cost-cutting measures to stem the loss,” said a third person aware of the discussions.
The edtech firm reported losses of Rs 4,588 crore for 2020-21, up from Rs 262 crore a year ago. Its readjusted revenue from operations stood at Rs 2,280 crore, down by a significant 48% from the projected revenue of about Rs 4,400 crore cited in the unaudited results of Think & Learn Pvt Ltd, the parent company which operates the Byju’s brand.
CFO appointment, valuation markdown
Byju’s recently appointed former executive of Vedanta group Ajay Goel as its new chief financial officer. The timing of the appointment is crucial as Byju’s needs to close negotiations for its $1.2 billion TLB, among the largest loans secured by an Indian startup.
The company said Goel will work with founders and the senior leadership on strategy development, capital planning and financial analysis. “His strategic thinking and financial acumen will be instrumental in helping us create even more value for our stakeholders,” Raveendran had said in a statement on April 3.
BlackRock, one of Byju’s investors, has marked down the value of its holding in the firm by nearly 50% to a little over $11 billion, ET had reported. This is a sign of softening of valuations amid challenging macroeconomic conditions as well as a reset in the edtech business after the spread of Covid-19 has slowed down.
ET reported last month that the new capital being arranged by Byju’s would be used to invest in existing businesses such as Aakash Institute, Great Learning, even as it has paused promoting its coding unit WhiteHat Jr, which was acquired in a $300 million deal in 2020. In 2021, it had spent about $2 billion in acquisitions to bulk up its offering in K-12, test preparation and higher education. WhiteHat Jr currently contributes less than 10% to Byju’s overall business.
Illustration and graphics by Rahul Awasthi