byju’s: Exclusive: Byju’s offers to pay higher interest rate on $1.2-billion loan

Edtech major Byju’s has offered to increase the rate of interest on its $1.2 billion term loan B (TLB) as part of renegotiating debt-financing arrangements, said several people with knowledge of the matter. This has been prompted by the delay in posting FY21 earnings and is linked with the FY22 financials as well.

The most valued Indian startup at $22 billion — which has been on a cost-cutting drive to stem losses — is in discussions with creditors on raising interest by at least 200-300 basis points (bps), said the people cited above.

The TLB was raised in November 2021 at Libor plus floating interest rate of 550 bps. The additional interest rate being discussed by Byju’s is on top of the 550 bps. A basis point is 0.01 percentage point.

Byju’s negotiation on offering a higher interest rate is due to lenders having recalled the loans triggered by delay in furnishing audited financials for FY21. The changes are also linked with FY22 financials which are yet to be filed with the Registrar of Companies (RoC).

The $1.2 billion TLB is due in 2026 and the interest rate change does not mean there is any default on Byju’s front.

Byju’s and the creditors have engaged individual advisors and law firms to close the new agreement, said the people cited above.

Byju Raveendran, founder and chief executive of the edtech firm, is directly involved in the talks. The FY21 financials were filed with regulatory bodies in India after an 18-month delay.

To be sure, there is no clear timeline on the filing of Byju’s FY22 results yet, again raising questions among all stakeholders.

“Byju’s is working towards amendments for its $1.2 billion term loan. Interest rate is one of the key factors being changed. Byju’s is aiming to finalise it with about a 200-250 bps increase. The talks are in the final stages but are yet to be signed,” said one of the persons cited above.

Other terms are expected to be part of the new deal between Byju’s and its TLB investors.

Backed by the likes of General Atlantic and Blackstone, Byju’s is expected to finalise the new terms over the next two weeks, as per current discussions, said the persons cited above.

Byju’s didn’t respond to queries.

At the time of the raise, this was the largest TLB being arranged by an Indian startup, but the loan was unrated.

Byju’s had picked up this financing for its acquisitions and expansion in the North American market. However, the company has been under pressure to improve its financials and is curtailing new investments amid the current macroeconomic conditions. Its potential acquisitions in the US have also been put on the back burner.

More capital soon?

Meanwhile, KPMG is running a due diligence process for the edtech firm’s planned funding round through convertible notes, sources said. A spokesperson for KPMG India did not immediately respond to ET’s query.

Byju’s has held talks with its existing investors as well as sovereign funds and pension funds to arrange this financing. In a funding round through convertible notes, no valuation gets ascribed. These investors will get a discount in valuation when the company raises its new equity funding round or if there is a liquidity event such as an initial public offering (IPO).

The edtech firm has been in talks to raise around $500 million through this financing instrument, ET had first reported in October last year. The size of the final funding is yet to be finalised and it could change, according to people aware of the ongoing discussions.

The company is arranging the new capital to invest in existing businesses such as Aakash Institute, Great Learning and others 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 over $2 billion in acquisitions to bulk up its offering in K-12, test preparation and higher education. WhiteHat Jr currently contributes less than 10% of Byju’s overall business.

Byju’s recently closed a $250 million funding round from its existing investors, including Qatar Investment Authority (QIA), which led the round with over $100 million. This included secondary share sales by existing investors of the edtech firm.

It had closed the fundraise at its previous valuation of $22 billion. The deal, however, involved special liquidation preferences for investors, making it different from a pure-play equity funding round, ET had reported in October. This gives preferred shareholders the right to get their money back before others in a sale or exit.

This capital was largely used to clear dues to Blackstone incurred during its $950 million acquisition of Aakash Institute in April 2021, people aware of the matter had told ET. For Byju’s, the latest round comes as it is looking to cut costs and turn profitable at a group level by March 2023, the company said in a statement on Monday.

“Byju’s is now at that sweet spot of its growth story where the unit economics and the economies of scale both are in its favour,” Raveendran had said in October. “This means the capital that we now invest in our business will result in profitable growth and create sustainable social impact. Regardless of the adverse macroeconomic conditions, 2022-23 is set to be our best year in terms of revenue, growth and profitability.”

Layoffs, cost-cutting

The company has undertaken at least two rounds of layoffs, firing around 3,500 people.

The edtech firm reported losses of Rs 4,588 crore for FY21, up from just Rs 262 crore in the previous fiscal year. Its readjusted revenue from operations stood at Rs 2,280 crore, a significant drop of 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.