The History Of The $1 Billion Loan: What Went Wrong With Byju’s Acquisitions?

Payment failures and financial problems have plagued Byju’s for months. However, the founder, Byju Raveendran, has continued to reassure existing investors and top executives that a significant fundraising is approaching. Amid widespread layoffs, investor resignations, auditor withdrawals, creditors’ revolt, and EPFO default in June, he put on a brave face in front of employees.

However, Byju required a Plan B because the much-needed new funding remained missing. That alternative option to raise funds and sell a few assets is now expected. Byju hopes that selling Great Learning and Epic, two firms it bought during a bull market in 2021, could fetch the ailing ed-tech market leader USD 1 billion and help it get out of debt. 

The two assets could fetch Byju between $800 million and $1 billion, which is expected to be utilised to accelerate the repayment of the company’s existing term loan B (TLB).

• Byju expects to make $400-500 million from the sale of Epic, a US-based kids’ learning firm purchased in a cash-and-stock deal worth $350-400 million in July 2021.
• According to those familiar with the negotiations, Byju aims to gain $500-600 million from selling higher education and upskilling firm Great Learning.

The background story of Byju’s 2021 TLB began late last year when the edtech business was required to make an early payment after violating the loan’s requirements, which included reporting its audited results for March 2022 by September. Looks at the timeline of how the events unfolded.

November 2021: Byju raises USD 1.2 billion via a TLB from the foreign market, more than the $700 million it had intended earlier, to fund general corporate objectives offshore, comprising supporting business growth in North America. Byju took benefit of the interest rate arbitrage present in the global markets and introduced the capital at Libor plus 550 basis points, which was much more down than what was present in the domestic markets.

July 2022: Byju says it will soon reveal its latest audited financials. At that time, the audited financial statements for the previous couple of financial years had not been filed with the ROC (Registrar of Companies). Deloitte, the company’s auditor, had reportedly flagged concerns about how the edtech titan recognised revenue, delaying the filings.

August 2022: The Ministry of Corporate Affairs gives a letter to Byju’s parent company, Think & Learn, questioning it to explain the seventeen-month delay in filing audited financials for the year ended March 31, 2021.

September 2022: Following an 18-month delay, Byju finally announced its audited results, where its FY21 revenue from operations was modified to Rs 2,280 crore even as it faced a massive loss of Rs 4,588 crore, around 18X the Rs 262 crore loss in the previous fiscal year. This observed a significant drop of about 50% from the planned revenue of about Rs 4,400 crore cited in the unaudited results.

October 2022: Byju gets a financing round of $250 million from its existing investors, comprising Qatar Investment Authority (QIA), which led the round with over $100 million. The round had the sale of secondary shares by existing investors of the edtech giant.

December 2022: Several asks the edtech giant to immediately repay part of the TLB as the team renegotiate the terms of the debt. The lenders hired Houlihan Lokey Inc. to suggest them on amending covenants after Byju breached terms, comprising the September deadline for filing the results for the year ended March 31, 2022.

March 2023: Byju offered to increase the rate of interest on its TLB as a component of renegotiating debt-financing arrangements. The additional interest was on top of the 550-basis-point Libor plus the floating interest rate at which the loan was originally raised.

April 2023: Byju’s lenders aim for up to $200 million (about Rs 1,600 crore) in prepayment along with a higher rate of interest from the company as a precondition to restructure the TLB.

May 2023: Byju gets a Rs 2,000-crore round from Davidson Kempner Capital in a structured credit deal against the cash flows of its test-prep subsidiary, Aakash Educational Services. Byju’s was predicted to use some of the new capital to refinance parts of its TLB.

June 1, 2023: It was reported that Byju’s creditors had pulled out of negotiations with the edtech behemoth to recast the TLB, posing a new setback to the beleaguered edtech firm. The talks were called off after the creditors moved court, blaming the firm for hiding $500 million of the funds raised.

June 6, 2023: Byju says it has sued the lenders in the New York Supreme Court for catalysing repayment of the term loan, calling their demands “high-handed”. In its lawsuit, Byju sought to “disqualify” lender Redwood, which allegedly had resorted to “predatory tactics” and invariably increased its exposure by acquiring a considerable stake in the TLB with the intent of making windfall profits. Byju also did not pay the $40 million quarterly interest due on June 5.

July 2023: Byju’s and its term loan B lenders tried to reach an agreement on adjustments to terms within ten days in order to speed up disbursement and cease litigation. According to the quoted sources, Byju and the group of lenders have committed to work together towards a signed and executed term loan modification by August 3, 2023. If the loan conditions are successfully modified, the creditors’ demand for expedited repayment will be dropped. Furthermore, any pending lawsuits might be resolved while avoiding lender-initiated enforcement proceedings.

August 2023: Byju missed yet another deadline set by its creditors to change the terms of a $1.2 billion debt, complicating the Indian borrower’s efforts to resolve the loan issue. By the latest agreed-upon deadline of August 3, the corporation had failed to settle on adjustments to the loan’s conditions demanded by lenders, including half payback and increased interest payments, although the Byju spokesperson said that no such event of failure occurred and August 3 was merely a hopeful date likely to be scheduled for a sign-off. 

September 2023: According to persons familiar with the matter, Byju’s has made a surprise repayment proposal to lenders, offering to return its full $1.2 billion term loan in less than six months. If the amended plan is granted, the corporation will return $300 million of the distressed debt in three months and the rest amount in the following three months. The sale of Epic is anticipated to be a component of this plan.

October 2023: Byju’s has set a goal of being profitable by March 2024 due to organisational consolidation and restructuring, as well as repayment of the $1.2 billion debt. Now, the corporation is attempting to decrease the number of employees by 3,000-3,500 people by eliminating duplication in functions throughout the organisation. The present activities dispersed across multiple business units of Think and Learn Private Ltd (TLPL) will be condensed into four basic areas: K-12, test prep, online, and hybrid. The corporate restructure, which aims to match resources with cash flows, will result in the company reaching break-even by March, in the fourth quarter of the current fiscal year.

And that’s the date update on the $ 1 billion loan saga, which started as an attempt to expand the business, paving its way through legal litigations and is now anticipated to come to an end by the expected sale of Epic.

Do you think this plan will work?

Byju planned to develop an edtech empire over a student’s full education cycle at the time of the purchase, encompassing K12 (Kindergarten to Year 12), exam preparation, coding and extracurricular activities, and professional upskilling. As the edtech bubble faded with the end of the pandemic, the company tried to decrease debt by focusing on K-12 and offline segments like Byju’s Tuition Centres while maintaining specialised successful businesses surrounding the core areas.

Byju’s had previously said that it planned to become profitable by March 2023. However, they reported a loss of Rs 4,588 crore for the fiscal year ending 31.03.2021, which was 19 times greater than the previous fiscal. The losses in the 2020-21 fiscal year increased from Rs 231.69 crore in the previous year. Revenues fell to Rs 2,428 crore in FY21, down from Rs 2,511 crore in FY20. However, for the fiscal year ending 31.03.2022, the company announced a four-fold rise in sales to Rs 10,000 crore. However, it did not provide profit or loss figures for that year. So, whether or not this approach will provide productive outcomes is just a function of time.

Moreover, it’s not just one case of complicated acquisition. To dominate the edtech sector, Byju has made many such acquisitions, which are now contributing to the obstacles to the success of the edtech giant. So, why does Byju need to Iron out its integration issues?

Byju has constantly sought acquisitions as part of its larger plan to become a full-stack ed-tech empire. The addition of 19 businesses to the main K-12 learning app increased the workforce count to 50,000. Byju paid USD 2.8 billion for these enterprises, largely in cash but also in stock. Byju raised USD 5.78 billion in stock and USD 1.2 billion in debt, a large chunk of which was used to acquire enterprises.

Great Learning, Aakash, and WhiteHat Jr retained separate brands among the purchased firms. According to reliable sources, Akash’s management was not pleased with Byju’s sales practices. Aakash’s principal business is divided into Aakash Digital and Aakash Offline. While the digital wing shares certain operations and marketing with Byju’s core, Aakash Offline is completely independent, with its own sales, marketing, and operations.

Some believe that the Whitehat Jr acquisition in mid-2020 exacerbated Byju’s troubles. Whitehat Jr’s exaggerated assertions and misrepresentations exacerbated Byju’s credibility issues. The decision to go after detractors and punish them with defamation caused even more complications. According to sources, despite Whitehat Jr’s merger with Byju’s, the sales staff remained independent due to the different nature of their products.

During the early phase, WhiteHat Jr’s sales staff frequently went above and beyond to win enrollments. Byju’s superiors have little oversight. While WhiteHat Jr made money at first, it began to dwindle following legal disputes with detractors. Following a takeover, there is often a ceremonial air, including town halls or e-mails. Surprisingly, there were none at Byju’s. “No formal orientation was provided to new employees transitioning to Byju’s new office spaces.” There was no introduction at all. According to individuals, this was concerning in terms of human resources. There was no formal statement about Byju’s purchase of Aakash. The transaction was revealed through media leaks, which further added to the confusion and distrust.

The last call- The call for transparency.

When investors Peak XV and Prosus withdrew from the Byju board, they highlighted two key reasons: lack of transparency and disregard for board members’ opinions. This is not a new issue. For a long time, investors had little idea how the firm was operated. At one time, investors were exchanging and correlating information to keep track of what was going on in the firm. According to one of the investors, Raveendran appeared to imply that they will receive their returns, but he is not comfortable with being questioned. That is not something a founder should say to someone whose money he is spending.

Hope the anticipated sale of Epic gives some hints to the founder of the company that he understands that acquisitions and mergers may or may not make the company an industry leader. To become the same, the company should conduct fair and transparent practices with every shareholder and stakeholder of the company.