Byju’s, once the shining star of India’s edtech sector, faces a fresh wave of challenges as its controversial rights issue hits a roadblock and a US court delves deeper into the alleged disappearance of millions from a bankrupt subsidiary.
On June 12, 2024, the National Company Law Tribunal (NCLT) ordered Byju’s to pause its ongoing rights issue, effectively halting the sale of new shares at a significant discount. This move comes after a group of investors, including Peak XV Partners and Prosus, protested the steep 99% discount offered, which valued Byju’s at a fraction of its peak valuation of $22 billion.
The NCLT further directed Byju’s to place all funds raised from the first tranche of the rights issue in an escrow account and provide details on the recipients of these shares.
The order suggests that Byju’s may not have secured the full $200 million it aimed for, potentially forcing the split into two tranches. Additionally, the company can not use any funds raised from the second rights issue, contradicting founder Raveendran’s previous claims of a fully subscribed issue.
“This Tribunal hereby restrains the Respondents (Byju’s) from going ahead with the present rights issue which is in progress, till the disposal of the main plea. The Respondents are further directed to keep the amounts collected so far since opening of the second rights issue…in a separate account which should not be utilised till the disposal of the main petition,” the order said.
The decision further complicates the situation for Byjy’s, which is already struggling with finds and payout. The mounting debt with each passing day and nearing deadlines are only making the situation worse. As much more was dependent on the $200 million, the unavailability of funds may jeopardise the complete survival plans that it may have chartered out.
The next hearing regarding the rights issue is scheduled for July 4th.
US Bankruptcy Case Takes a New Turn
In a parallel development, a US federal judge is attempting to unravel the complexities surrounding the bankruptcy of Byju’s US unit. The case centres around $533 million that Byju’s allegedly hid in a Florida hedge fund, Camshaft Fund, and later moved to accounts outside the US.
According to court records, the money was subsequently moved to a UK lender and then to an unnamed, non-US entity affiliated with Byju’s.
Suspecting foul play, Lenders are using the bankruptcy proceedings of Byju’s Alpha Inc., the bankrupt US subsidiary, to recover the missing funds.
In a recent hearing, Judge John Dorsey offered to lift an arrest warrant for the hedge fund’s founder, William C. Morton, if he cooperates in locating the missing money. Morton allegedly fled the US to avoid questioning, but his attorney assured the court of his willingness to cooperate.
The whereabouts of this missing money is a major point of contention between Byju’s, which owes lenders $1.2 billion, and the creditors themselves. This ongoing dispute further complicates the already troubled financial situation of the Indian edtech leader.
It will be interesting to see how early Byju’s can emerge from the legal and financial crisis and regain investor confidence. The coming weeks and months will be critical for the company’s survival and its future in India’s competitive edtech sector.
