Byju’s may move court to use rights-issue funds for salary payments

Byju's, once one of India's hottest tech startups, has for while now faced scrutiny over corporate governance and management practices, with some investors advocating for a change in leadership. (Photo: Bloomberg)
Byju's, once one of India's hottest tech startups, has for while now faced scrutiny over corporate governance and management practices, with some investors advocating for a change in leadership. (Photo: Bloomberg)

Summary

  • Byju’s had launched a rights issue on 27 January to raise $200 million, which concluded on 28 February, but the company has not been able to use the funds following a court order

Mumbai: Edtech company Byju's will likely move the Bengaluru bench of the National Company Law Tribunal (NCLT) next week to unlock a portion of its funds, currently in an escrow by court order, to cover salary commitments, a person with knowledge of the matter told Mint, requesting anonymity.  

This follows a company-wide email by founder Byju Raveendran on Saturday which said that the firm was facing difficulties in disbursing February salaries to its approximately 20,000 employees.

The company's monthly salary expenditure amounts to about $10 million, the person cited above said. 

The company's plan to tap the funds raised as part of the rights issue appears to indicate that it is struggling with cash flows from routine operations.

Byju’s did not respond to requests for a comment on the issue.

Raveendran's email to employees, though, hinted at the company's financial predicament, expressing an inability to utilize recently raised funds for salary payments.

The company is "unable to utilise the funds raised to pay your hard-earned salaries…We are striving to ensure that your salaries are paid by the 10th of March. We shall make these payments the moment we are permitted to do so as per law," the letter to the employees said.

Byju’s had launched a rights issue on 27 January to raise $200 million, which concluded on 28 February, but the company has not been able to use the funds, as per a court directive. 

Byju’s investors Prosus NV, Peak XV Partners, General Atlantic, and Sofina SA had jointly filed a petition with the NCLT against the rights issue, citing oppression and mismanagement of the company. The four investors who collectively hold around 25% stake in Byju’s had sought interim relief on the grounds of alleged financial mismanagement and siphoning of funds by the management, according to court arguments on 27 February.

The edtech offered to keep the money in an escrow till the conclusion of the proceedings, which the court accepted. Hearing in the matter is next scheduled for April 4.

The dispute stemmed from Byju's valuing itself at $20 million for the rights issue, a steep discount to its peak valuation of about $22 billion. In effect, investors not participating in the rights issue would see their shareholding in Byju's diluted significantly, enough to wipe them off the cap-table.

The court said that Byju’s would need to call a fresh extraordinary general meeting (EGM) and secure 51% approval before using the proceeds of the rights issue, according to the law.

Blaming recent investor action, Raveendran in his letter said that the money raised from the recently concluded rights issue was locked up in an escrow account because of which, “we are unable to utilise the funds raised to pay your hard-earned salaries".

Raveendran also appeared to single out one of its earliest investors Peak XV Partners, formerly Sequoia Capital India.

“At their (investors) behest, the amount raised through the rights issue is currently locked in a separate account. It is an agonizing reality that some of these investors have already reaped substantial profits – in fact, one of them has made a staggering eight times their initial investment in BYJU'S. And yet, their actions convey a callous disregard for our lives and livelihoods," Raveendran said in his letter.

The investor who made eight times their initial investment is Peak XV Partners, the person cited above said. Peak XV did not immediately respond to a request for comment.

This is not the first time the company has struggled to pay salaries.

Raveendran has reportedly had to resort to borrowing and even pledging personal property to cover operational costs. 

Once one of India's hottest startups, the company has been facing scrutiny over corporate governance and management practices for a while now, with some investors advocating for a change in leadership.

The company reported its FY22 financials in January. Losses at the Byju Raveendran-led company more than doubled to 8,245 crore from 4,564 crore a year ago, while consolidated income rose to 5,298.43 crore from 2,428.39 crore, Mint reported.

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