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Business News/ Companies / News/  Byju’s ‘Hobson’s choice’ rights issue fully subscribed

Byju’s ‘Hobson’s choice’ rights issue fully subscribed

Of the $200 million being raised, CEO Byju Raveendran and his family will pump in $45 million to maintain their shareholding of about 23% in Byju’s

Byju's, while announcing its rights issue to raise around $200 million, valued itself at $22 million or 0.1% of what it peak valuation of $22 billion (Bloomberg)Premium
Byju's, while announcing its rights issue to raise around $200 million, valued itself at $22 million or 0.1% of what it peak valuation of $22 billion (Bloomberg)

Mumbai: Byju’s investors have fully subscribed to its parent Think & Learn Pvt. Ltd’s rights issue—a “Hobson’s choice", as described by the troubled online tutor’s co-founder and chief executive Byju Raveendran.

Investors in Byju’s had two options: either subscribe to the issue at a valuation cut of more than 99%, or risk diluting their stakeholding in the company.

After Byju’s announced plans for a $200-million rights issue, a section of its investors called for an emergency meeting of shareholders to seek Raveendran’s ouster and a revamp of the company’s board.

“I understand that participating in this rights issue may seem like a Hobson’s choice. However, this is the only viable option in front of us today to prevent permanent value erosion," Raveendran said in a letter to shareholders on Wednesday.

Byju’s valued itself at $22 million for the rights issue, or at 0.1% of its peak estimated worth of $22 billion that had given it top billing as India’s most valued startup.

Of the $200 million being raised in the rights issue, $45 million will flow in from Raveendran and his family so they could maintain their shareholding of around 23% in the company, people familiar with the development said, declining to be identified.

A company spokesperson declined to comment.

Byju’s will use the money raised primarily to tide over its liquidity crisis as well as to repay some of its vendors and debtors. 

The company made headlines when it paid its employees their salaries for January earlier this month, with Raveendran saying in a letter to them that he had been “moving mountains for months to make payroll", and that “the struggle was even bigger" this time.

“This $200 million raise will give our company the capital it needs to ensure that we can take care of the current liabilities and also provide sufficient growth capital to get us back to our former glory," Raveendran said in his letter to shareholders on Wednesday.

“To ensure transparency with regard to the usage of funds raised through the rights issue, we will appoint a third-party agency to monitor the same. This agency will report to all shareholders on a quarterly basis, within 45 days from the end of the quarter, along with commentary from the board," he added.

Raveendran has been at loggerheads with his key shareholders who have moved for his ouster as the group CEO. 

On 1 February, key investors including General Atlantic, Prosus Ventures, Peak XV and Chan Zuckerberg Initiative, holding a combined 30% stake in Think & Learn, called for an extraordinary general meeting to change the company’s leadership, reconstitute its board, and address financial management and governance issues.

 “My duty to my shareholders is still steadfast. In order to increase shareholder representation, I commit to restructuring the Board and appointing two non-executive directors to the Board by the mutual consent of the founder and shareholders; right after the FY23 Audit, which we expect to close by the end of this quarter," Raveendran said in his letter on Wednesday. 

After a delay of more than 22 months, the company last month filed its consolidated financials for the period from April 2021 to March 2022. Its losses ballooned to 8,245 crore from 4,564 crore in the year prior. Consolidated income, though, increased to 5,298.43 crore in FY22 from 2,428.39 crore in the year before.

Byju’s has been embroiled in a legal battle with its Term Loan B bondholders, who have been seeking repayment of loans amounting to over $1.2 billion. The TLB loans were trading at $27.26 cents to a dollar, according to Bloomberg terminal. 

Ranjan Pai, chairman of the Manipal Education and Medical Group, who replaced the debt held by global lending firm Davidson Kempner, converted it into equity in Byju’s test prep subsidiary, Aakash Educational Services, at a valuation of $600-$650 million. Byju’s had acquired Aakash in 2021 for $1 billion.

This led to a massive dilution for Think & Learn, making it a bone of contention for its major shareholders. Post the dilution, Pai now holds 38-39% stake in Aakash.

Urging all shareholders to participate in the rights issue, Raveendran in his letter said, “The best course of action is for value to remain within our shareholder group. My belief in all your participation in this rights issue remains strong."

He added: “The amount, by design, will not strain shareholders, but will be of immense value to the company. It is a small step for you, but it will be a collective relief for all stakeholders, ensuring goodwill and hard work on the road ahead."

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Sneha Shah
Sneha writes on new economy businesses, private and public marker funding and deals. She writes about startups and the new economy, specifically PE/VC and investment banking.
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Published: 21 Feb 2024, 10:11 AM IST
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