Indian ed-tech giant Byju’s is facing ongoing legal action in a Delaware court, as lenders behind a $1.2 billion loan accuse the company of breaching the terms of the loan agreement and fraudulently moving $500 million in an attempt to hide the funds, allegations the company denies.
A lawsuit outlining the allegations was filed earlier this month by GLAS Trust Company and investor Timothy Pohl against Byju’s Alpha, a nonoperational entity created solely to house and collateralize the November 2021 loan, as well as Riju Raveendran, who is co-founder Byju Raveendran’s brother and a company leader, and Tangible Play, a U.S.-based Byju’s subsidiary.
Last week, a judge granted the lenders an interim status quo order that allows them to control Byju’s Alpha as collateral on the loan, appoint Pohl sole director and officer of the entity, and order Byju’s to hand over information about its accounts.
In a statement provided to EdWeek Market Brief, Byju’s said the order does not have “any bearing on any other subsidiary of Byju’s anywhere in the world.”
The lenders allege Byju’s committed “repeated and ongoing breaches” of the credit agreement by not providing them with updated financial data, according to the complaint and briefs filed in Delaware’s Court of Chancery. They also claim that after the lenders raised those concerns, Byju’s transferred $500 million from Byju Alpha’s account to another account the company has in the U.S.
Byju’s disputed the allegations, and said they “are related to an inconsequential technical matter” and that all payment obligations have been met.
“There have been no monetary defaults under the loan,” the statement read.
In a court document arguing to keep proceedings confidential, Byju’s claims that the lenders are forcing the company into default in order to extract more economically favorable terms on the loan. They further allege that the lawsuit was filed to create additional leverage in those negotiations.
The trust company and Pohl’s attorneys did not return a request for comment.
Byju’s, which has raised more than $6 billion since it was founded in 2011, is known as one of India’s leading ed-tech providers. Its rapid growth has coincided with a sharp increase in investors’ interest in the Indian ed-tech market.
Despite its growth in India and worldwide, Byju’s has faced challenges in the market in recent years that have impacted its valuation. While the company was reportedly valued at $22 billion during its most recent funding raise, this week, investment firm Blackrock dropped its valuation of Byju’s to $8.4 billion, a decrease from the $11.5 billion it reportedly valued the company at in April, according to a report in Business Today.
In court documents, the lenders claim their relationship with the company’s founder Byju Ravindran “has been marred” by the company’s “troubling disregard for their contractual obligations and a series of broken promises to remedy the breaches caused by their disregard.”
The lenders claim Byju’s defaulted on the loan in part by not providing consolidated financial data it had agreed to send to the lender for the fiscal year ending March 31, 2021, leaving the lenders with financial information on a $1.2 billion loan that was two years outdated.
‘No Realistic Path’ to a Resolution
Negotiations over the lenders’ concerns continued, and the lawsuit alleges Ravindran purposely dragged out talks in order to buy time to raise new funding before the lenders publicly disclosed the dispute.
TechCrunch reported on May 12 that Byju’s raised $250 million in a fresh funding round from New York investment firm Davidson Kempner, citing anonymous sources. The company is also reportedly close to raising $700 million from a sovereign fund.
Another catalyst for the lawsuit, the lenders claim, was the Indian authorities raid of Byju’s office on April 29 as part of an investigation into suspected breaches of foreign exchange laws.
The government’s probe, in part, will look at Ravindran’s “past payments to the lenders,” the lawsuit stated. Concerned the Indian government could seize assets or restrict foreign business operations, the lenders said they felt there was “no realistic path forward to a negotiated resolution.”
In a brief, Byju’s alleged the lenders’ “pressure tactics” are designed to go around a non-disclosure agreement between the two parties. Breaching the non-disclosure agreement would “seriously harm Byju’s ability to obtain new financing,” Byju’s wrote in arguing to keep proceedings closed to the public.
Judge Morgan Zurn of the Delaware Court of Chancery, where the lawsuit was filed, denied Byju’s requests to keep the complaint confidential and is now considering additional motions to expedite the trial, seal the proceedings, and keep the status quo order in place.
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