Byju's, one of India's most successful and well-known education technology startups, has missed a $40 million interest payment on a $1.2 billion dollar loan, triggering a legal dispute with its lenders and raising questions about its financial health.
What is Byju's?
Byju's is an online learning platform that offers courses for students from kindergarten to 12th grade, as well as test preparation for competitive exams like JEE, NEET, CAT, IAS, GRE and GMAT. The company claims to have over 150 million registered users and 6.5 million paid subscribers across India and abroad.
Byju's was founded in 2015 by Byju Raveendran, a former teacher and son of educators, who started by offering online video lessons for students preparing for entrance exams. The company grew rapidly through a series of acquisitions, such as WhiteHat Jr, Aakash Educational Services, Epic and Great Learning, expanding its offerings to include coding, gaming, reading and upskilling courses.
Byju's also attracted funding from some of the world's most prominent investors, such as Naspers, Tiger Global, Sequoia Capital, SoftBank Vision Fund and Facebook founder Mark Zuckerberg's Chan Zuckerberg Initiative. The company was valued at $16.5 billion in June 2021, making it the most valuable startup in India and one of the largest edtech companies in the world.
What happened with the loan?
In March 2020, Byju's raised a $1.2 billion term loan B (TLB) from a consortium of banks and institutional investors led by Barclays Plc. A TLB is a type of leveraged loan that is usually underwritten by banks and sold on to institutional investors. It is typically used by companies with low credit ratings or high debt levels to finance acquisitions or growth plans.
The loan had a maturity of six years and an interest rate of 7.25%, which was considered attractive at the time given the low interest rate environment and the high growth potential of Byju's. The loan also had certain covenants or conditions that required Byju's to maintain certain financial ratios and provide audited financial statements to the lenders on a regular basis.
However, things started to go wrong for Byju's when the pandemic-induced boom in online education began to fade and its growth slowed down. The company also faced regulatory scrutiny in India over its acquisitions and foreign exchange transactions. Its offices were raided by the Enforcement Directorate in February 2021 for alleged violations of the Foreign Exchange Management Act (FEMA).
Byju's also failed to meet some of the covenants of the loan agreement, such as filing its audited financial results for the fiscal year ended March 2021 by September 30, 2021. This triggered a default event that allowed the lenders to demand an accelerated repayment of the loan or take legal action against Byju's.
Byju's tried to renegotiate the terms of the loan with the lenders, offering to increase the interest rate by up to 300 basis points and prepay part of the debt. However, the lenders rejected these proposals and filed a lawsuit against Byju's in Delaware in November 2021, seeking to recover the full amount of the loan plus interest and fees.
Byju's then filed a counterclaim in New York in December 2021, challenging the validity of the loan agreement and accusing one of the lenders, Redwood Capital Management LLC, of buying a significant portion of the loan while primarily trading in distressed debt. Byju's alleged that this violated the conditions of the loan agreement that prohibited any lender from acquiring more than 10% of the loan without Byju's consent.
Byju's also said that it had received a large capital infusion from new investors that would allow it to pay down the loan. However, it did not disclose the details of this funding or make any payments to the lenders.
On June 6, 2023, Byju's skipped a $40 million interest payment on the loan that was due on that day. The company said that it had elected not to make any further payments on the loan until the dispute was resolved by the court.
What are the implications?
The missed payment by Byju's has raised concerns about its financial stability and reputation in the market. The company's credit rating has been downgraded by Moody's Investors Service and Fitch Ratings to Caa2 and CCC+, respectively, indicating a high risk of default.
The company's loan has also plunged in value, trading at around 64 cents on the dollar as of June 6, 2023, down from 78 cents on June 2, 2023, according to data compiled by Bloomberg. This means that the lenders are facing a significant loss on their investment.
The legal dispute between Byju's and the lenders could also have a negative impact on the company's ability to raise funds from other sources or pursue its expansion plans. The company has been eyeing an initial public offering (IPO) in the US or India in the near future, but this could be delayed or derailed by the ongoing litigation.
The case also highlights the risks and challenges faced by Indian startups that rely on foreign debt to fuel their growth. While such loans can provide access to large amounts of capital at low interest rates, they also come with strict covenants and reporting requirements that can be difficult to comply with in a volatile and uncertain business environment.
Byju's is not the only Indian startup that has faced trouble with its foreign debt. In 2019, Oyo Hotels & Homes, another unicorn backed by SoftBank, defaulted on a $100 million loan from China's Didi Chuxing. In 2020, Flipkart, India's largest e-commerce company owned by Walmart Inc., had to repay a $1.2 billion loan from a group of banks after failing to meet certain financial targets.
What's next?
The outcome of the legal dispute between Byju's and the lenders is uncertain and could take a long time to resolve. The lenders have asked the court to appoint a receiver to take control of Byju's assets and operations until the loan is repaid. Byju's has opposed this request and asked the court to dismiss the lawsuit.
Meanwhile, Byju's has said that it remains confident in its business model and growth prospects and that it will continue to serve its customers and partners. The company has also said that it is open to constructive dialogue with the lenders to find an amicable solution.
However, until the dispute is settled, Byju's will have to deal with the consequences of its missed payment and the uncertainty surrounding its future.
Source
(1) BYJU’s files case against investment firm over $1.2 billion loan repayment. https://www.msn.com/en-in/money/topstories/byjus-files-case-against-investment-firm-over-dollar12-billion-loan-repayment/ar-AA1cb7Dc.
(2) Byju's Skips $40 Million Loan Payment In Dispute With Lenders. https://www.ndtv.com/india-news/byjus-skips-40-million-loan-payment-in-dispute-with-lenders-4097842.
(3) Byju’s Decides Not To Make Further Payments On $1.2 Billion Loan, Files Case Against Investment Firm Redwood. https://english.jagran.com/business/byjus-decides-not-to-make-further-payments-on-12-billion-dollar-loan-files-case-against-investment-firm-redwood-10081349.
(4) BYJU's skips deadline for $40 million payment, files suit against lenders. https://www.theweek.in/news/biz-tech/2023/06/06/byjus-skips-deadline-for-dollar40-million-payment-files-suit-against-lenders.html.
(5) High-Flying Indian Startup Byju’s Skips Payment on Dollar Loan. https://finance.yahoo.com/news/byju-skips-40-million-loan-031524061.html.
(6) High-Flying Indian Startup Byju’s Skips Payment on Dollar Loan. https://news.bloomberglaw.com/bankruptcy-law/high-flying-indian-startup-byjus-skips-payment-on-dollar-loan.
What are the disadvantages of BYJU's?
It charges around 3,000 per month totalling to a whopping amount of 36,000/- per year. A layman wouldn't be able to afford Byjus at all. It is not at all an economical option especially when there are other such websites that offer the same quality content for much lesser price.
Which app is better than Byjus?
Top 10 alternatives to BYJU'S includes Cuemath, Edisapp School Management ERP, Grammarly, TalentRecruit, EDUMAAT - Imagine Greatness, PLA Net Library Management, EDWise- ERP for Schools & Colleges, Step eCampus, Signal Vine AND SchoolBits.
Which is better Vedantu or BYJU's?
Service of BYJU'S VS Vedantu Talking about services, Byju's offers classes for children from 1st grade to 12th grade. Vedantu offers classes for children from 4th to 12th standard. However, these learning partners have also started coaching entrance exams like IIT-JEE, NEET, and CAT on their platforms.
Is online course good or bad?
Online Learning Requires Self-Discipline If a student does not feel they are getting the proper guidance, they may not have enough self-discipline to fully engage in the lessons themselves. Moving to virtual, real-time classes instead of just online courses gives a greater sense of accountability.
