Byju's offers to pay higher interest rate on $1.2 billion loan

By siliconindia  |  Monday, 20 March 2023, 09:23:51 AM IST

Byju's offers to pay higher interest rate on $1.2 billion loan
Edtech major Byju’s has offered to increase the rate of interest on its $1.2 billion term loan B (TLB) as part of renegotiating debt financing arrangements, said several source with knowledge of the matter. This has been prompted by the delay in posting FY21 earnings and is linked with the FY22 financials as well. The most valued Indian startup at $22 billion which has been on a cost cutting drive to stem losses is in talks with creditors on raising interest by at least 200-300 basis points (bps), said the sources.
The TLB was raised at Libor plus floating interest rate of 550 bps. The additional interest rate being discussed by Byju’s is on top of the 550 bps. A basis point is 0.01 percentage point. Byju’s negotiation on offering a higher interest rate is due to lenders having recalled the loans triggered by delay in furnishing audited financials for FY21. The changes are also linked with FY22 financials which are yet to be filed with the Registrar of Companies (RoC).
The $1.2 billion TLB is due in 2026 and the interest rate change does not mean there is any default on Byju’s front. Byju’s and the creditors have engaged individual advisors and law firms to close the new agreement, said the sources.
Byju Raveendran, founder and chief executive of the edtech firm, is directly involved in the talks. The FY21 financials were filed with regulatory bodies in India after an 18 month delay. To be sure, there is no clear timeline on the filing of Byju’s FY22 results yet, again raising questions among all stakeholders.
“Byju’s is working towards amendments for its $1.2 billion term loan. Interest rate is one of the key factors being changed. Byju’s is aiming to finalise it with about a 200-250 bps increase. The talks are in the final stages but are yet to be signed”. Other terms are expected to be part of the new deal between Byju’s and its TLB investors.
Backed by the likes of General Atlantic and Blackstone, Byju’s is anticipated to finalise the new terms over the next two weeks, as per current discussions, said the sources.
At the time of the raise, this was the largest TLB being arranged by an Indian startup, but the loan was unrated. Byju’s had picked up this financing for its acquisitions and expansion in the North American market. However, the company has been under pressure to improve its financials and is restricting new investments amid the current macroeconomic conditions. Its potential acquisitions in the US have also been put on hold.
Meanwhile, KPMG is running a due diligence process for the edtech firm’s planned funding round through convertible notes, sources said. A spokesperson for KPMG India did not immediately respond to the query.
Byju’s has held talks with its existing investors as well as sovereign funds and pension funds to arrange this financing. In a funding round through convertible notes, no valuation gets ascribed. These investors will get a discount in valuation when the company increases its new equity funding round or if there is a liquidity event such as an initial public offering (IPO).
The edtech firm has been in talks to raise around $500 million through this financing instrument, reported in October last year. The size of the final funding is yet to be finalised and it could change, according to people aware of the ongoing discussions. The company is organising the new capital to invest in existing businesses such as Aakash Institute, Great Learning and others even as it has paused promoting its coding unit WhiteHat Jr, which was acquired in a $300 million deal in 2020.
In 2021, it had spent over $2 billion in acquisitions to bulk up its offering in K-12, test preparation and higher education. WhiteHat Jr currently contributes less than 10% of Byju's overall business. Byju’s recently closed a $250 million funding round from its existing investors, including Qatar Investment Authority (QIA), which led the round with over $100 million. This included secondary share sales by existing investors of the edtech firm.
It had closed the fundraise at its previous valuation of $22 billion. The deal, however involved special liquidation preferences for investors, making it unique from a pure-play equity funding round. This gives preferred shareholders the right to get their money back before others in a sale or exit.
This capital was largely used to clear dues to Blackstone incurred during its $950 million acquisition of Aakash Institute in April 2021, source aware of the matter had told. For Byju’s, the latest round comes as it is looking to cut costs and turn profitable at a group level by March 2023, the company said in a statement.
“Byju’s is now at that sweet spot of its growth story where the unit economics and the economies of scale both are in its favour,” Raveendran had said. “This means the capital that we now invest in our business will result in profitable growth and create sustainable social impact. Regardless of the adverse macroeconomic conditions, 2022-23 is set to be our best year in terms of revenue, growth and profitability.”

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