Edtech major Byju’s overseas lenders, who have extended more than 85 per cent of $1.2-billion term loan, have filed an insolvency petition against the edtech major.

The bankruptcy petition was filed in the Bengaluru bench of the National Company Law Tribunal (NCLT), under section 7 of the Insolvency and Bankruptcy code of India, 2016, said the Ad Hoc Group of term loan lenders (Ad Hoc Group). The lenders group said that the action was taken after 16 months effort to restructure the loan.

The Ad Hoc lenders group noted that Byju’s repeatedly disregarded its loan obligations post-default, including refusing to make any contractually required loan payments, delaying the financial reporting obligations. It also noted that Byju’s Alpha, the US-based subsidiary of edtech major, transferred $533 million in loan proceeds to an ‘obscure, nascent hedge fund’.

“Byju’s Alpha transferring $533 million in loan proceeds to an obscure, nascent hedge fund and then apparently transferring the ownership of the money to a still undisclosed entity. To date, the former director at BYJU’s Alpha (who was appointed by BYJU’s) and the management of BYJU’s continue to refuse to provide any specific information on the status of such funds to the lenders under the term loans or even the new director of Byju’s Alpha,” it noted.

Substantial portion

The lender committee also noted that BYJU’S is trying to retain a ‘substantial portion’ of the proceeds from the contemplated sale of Epic, despite the lenders’ senior secured claims on Epic’s assets and the clear requirements of the credit agreement.

“The myriad issues facing BYJU’s are entirely self-inflicted. For months, we sought to avoid this exact situation, repeatedly attempting to engage constructively with BYJU’s management and other stakeholders and providing them with multiple paths to reach a mutually agreeable resolution, even including after the Delaware court confirmed the validity of Byju’s defaults. It is our belief now that BYJU’s management has no intention or ability of honoring its obligations under the Term Loans. That said, we are hopeful that India’s corporate insolvency resolution process will help stabilise Think & Learn and result in implementing a resolution plan that accounts for the interests of all stakeholders,” said the Ad Hoc Group in its statement.

Byju’s reply

Byju’s, however, said that any proceedings by lenders before the NCLT are premature and baseless.

“The validity of lenders’ actions, including acceleration of the term loan, is pending and under challenge in several proceedings, including before the New York Supreme Court. Hence, any proceedings by lenders before NCLT are premature and baseless,” said Byju’s in its statement.

The edtech major said the acceleration by the lenders ‘appears to appear to be based, in part, on the failure of Whitehat Education Technology.’

“This is despite the fact that provision of such guarantee would contravene extant RBI regulations. In fact, proceedings are on foot before the Delaware appellate courts on this very issue. Previously too, the lenders have made unsuccessful attempts to interfere with Byju’s rights to deal with capital provided under the loan agreement. The Delaware Chancery Court has rightfully refused to let the lenders do so, and lenders’ subsequent attempts on this front have been unsuccessful,” the edtech major said.

In July, BYJU’S reached an agreement with the steering committee of the lenders to amend the loan’s terms, including the pricing and tenure, by August 3, 2023. The disagreements arose soon after Byju’s secured the $1.2-billion term loan facility (TLB) from the lenders in November 2021.

In September, Byju’s said it invested the money raised through TLB in ‘high-grade fixed income assets,’ countering allegations of concealing the money from lenders by putting it in an ‘obscure hedge fund.’

In its statement, the edtech major said the timing of these proceedings is also conspicuous as it coincides with the commencement of a rights issue by the parent company, Think and Learn. According to sources, the company is looking to raise $150-300 million via this right issue.

Legal process

The edtech company said the initiation of the legal process does not reflect on its financial strength or its ability to meet payment obligations.

“The initiation of this legal process does not reflect the true financial standing of our company, nor does it accurately represent our ability to meet our obligations. We firmly maintain that we are a resilient, viable entity that is incrementally charting a path towards sustainable growth. As always, we remain committed to a constructive dialogue aimed at a mutually beneficial and amicable resolution of matters,” the statement added.

Byju’s filed its FY22 financials with the Ministry of Corporate Affairs and has said that losses ballooned to ₹8,245 crore in FY22 from ₹4,564 crore in FY21, while its consolidated revenue jumped 118 per cent to ₹5,298 crore in FY22 (₹2,428 crore).