Out with the board, say angry Byju’s investors

The $200 million rights issue by Think and Learn Pvt. Ltd (T&L), parent of Byju’s, threatens to wipe out shareholders who decline to participate.

General Atlantic, Prosus Ventures, Peak XV and Chan Zuckerberg Initiative, among others, signed a notice demanding the change, the people cited above said. The extraordinary general meeting (EGM) to “address persistent issues” includes a call for the reconstitution of the beleaguered company’s board, “so that it is no longer controlled by the founders of T&L”.

“The request for an EGM is supported by a consortium of T&L shareholders and followed earlier notices of requisition sent to the T&L board of directors in July and December 2023, which were disregarded,” a spokesperson for the consortium said in a statement.

The consortium said it is deeply concerned about the “future stability of the company under its current leadership and with the current constitution of the board.”

Resolutions for the EGM include “a request for the resolution of the outstanding governance, financial mismanagement and compliance issues; a reconstitution of the board of directors so that it is no longer controlled by the founders of T&L; and a change in leadership of the company,” the statement said.

Mint was the first to report on 6 July that Byju’s investors were pressing for a leadership change.

A Byju’s spokesperson did not respond to a request for comment.

“In Indian corporate history, this process has been followed in the past as a very effective measure of shareholder activism. Assuming that the shareholders do have the relevant majority, this process can actually be effective in taking steps against the existing management of the company,” said Yashojit Mitra, a partner at Economic Laws Practice, a homegrown law firm.

More than 30% of the shareholders have signed the notice and over 50% of the investors support the move, a person aware of the matter said.

Byju’s reached its peak valuation of about $22 billion and turned India’s biggest startup in late 2021, but has seen a sharp downturn since then. It is facing a capital crunch amid mounting debt and other liabilities.

The investors said the EGM notice followed months of attempts to engage with the company’s management to resolve issues related to corporate governance, mismanagement, and compliance.

Last week, Byju’s launched a rights issue at a post-money valuation of $225-250 million. As the rights issue is being raised at a pre-money valuation of $25 million, this means investors who came in at high valuations could get wiped out from the cap table, if they decline to participate. Investors have not formally indicated if they will participate in the current format. Should the proposal for EGM succeed, investors can expect the meeting on 23 February, a second person said. It will be just a week ahead of the end of the rights issue, which the company announced last week and will stay valid for 30 days.

“Since a rights issue is approved by the board, the only way for the existing investors to stop the rights issue (other than judicial/regulatory intervention) is by changing the composition of the board. Hence, the notice of EGM by the existing investors of Byju’s seeking a change in composition of the board and management of Byju’s is essentially an attempt to recall the decision of Byju’s existing board to proceed with the rights issue at a substantially low valuation,” said Aaron Solomon, managing partner of Solomon & Co., Advocates and Solicitors.

“Five to six investors have already said that they will participate in the rights issue,” a third person said.

Simultaneously, Byju’s expects to defend an insolvency petition next week filed by its overseas lenders in Benguluru. The lenders have been seeking repayment of loans amounting to over $1.2 billion. The TLB loans were trading at $27.26 cents to a dollar, Bloomberg data showed.

The company is, meanwhile, grappling with increased liabilities owed to vendors and employees as students returned to in-person learning amid the reopening of the economy.

The funds will be used to pay off mounting liabilities. From employee provident fund to unpaid vendors, the company’s liabilities are pegged at $125-$150 million.

Byju’s has been trying to negotiate with its bondholders and at the same time also raise money by selling some key assets such as US-based Epic and Singapore-headquartered Great Learning.

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