Byju’s, the leading edtech company in India, is facing a cash crunch and has decided to raise $200 million from its existing shareholders through a rights issue. The company claims that the funds will be used to clear its liabilities and achieve operational sustainability.
What is a rights issue?
A rights issue is a way of raising capital by offering existing shareholders the right to buy additional shares in proportion to their existing holdings. The shareholders can either exercise their right or sell it to someone else. A rights issue is usually done at a discounted price to attract investors and generate funds quickly.
Why does Byju’s need a rights issue?
Byju’s has been struggling to repay its $1.2 billion Term Loan B (TLB) that it took in 2022 to fund its aggressive expansion plans. The company had acquired several startups in the edtech space, such as WhiteHat Jr, Aakash Educational Services, Great Learning, and Toppr. However, the company failed to generate enough revenue and profit to service its debt and faced a default in December 2023.
The TLB lenders, who are mostly foreign funds, have filed an insolvency petition against Byju’s in the National Company Law Tribunal (NCLT) Bengaluru, seeking to recover their dues. Byju’s has challenged the validity of the lenders’ actions in various courts, including the New York Supreme Court.
Byju’s has also been trying to sell some of its subsidiaries to raise funds and settle the debt. However, the company has not been able to find buyers at the desired valuation. The company’s valuation has plummeted from $22 billion in March 2022 to $225 million in January 2024, according to the rights issue price.
How will the rights issue help Byju’s?
Byju’s hopes that the rights issue will help it to raise enough funds to clear its immediate liabilities and meet its operational requirements. The company also expects that the rights issue will enable its existing shareholders to participate in its growth journey and prevent further value impairment.
The founders of Byju’s, who are also the largest shareholders, have personally invested more than $1.1 billion in the company in the last 18 months. They have expressed their confidence in the company’s mission and business model, and have assured the shareholders that the company is close to achieving operational profitability.
Byju Raveendran, the founder of Byju’s, said: “This rights issue is about those who care the most about Byju’s stepping up as we continue to turn the company around. Along with being a founder, I am also the largest investor in the company. The funds raised will be exclusively utilised to clear immediate liabilities and meet operational requirements, while maintaining the current rights of our valued shareholders. I am also happy to share that Byju’s is now less than a quarter away from achieving operational profitability, reflecting the effectiveness of our strategic initiatives and the resilience of our business model.”
What are the challenges and opportunities for Byju’s?
Byju’s is facing a tough competition in the edtech sector, which has seen a surge in demand and supply due to the Covid-19 pandemic. The company has to contend with rivals such as Unacademy, Vedantu, upGrad, and Khan Academy, who offer similar or better products and services at lower prices. The company also has to deal with the regulatory uncertainties and legal disputes that plague the edtech industry in India.
However, Byju’s also has some advantages that can help it to overcome its challenges and seize the opportunities. The company has a large user base of over 100 million students, a strong brand recognition, a diversified portfolio of offerings, and a talented team of educators and innovators. The company also has a vision to transform the education system in India and beyond, and to make learning accessible and enjoyable for everyone.
Byju’s believes that the rights issue will demonstrate its proactive approach to securing the necessary capital for growth and ensuring a promising future for all its stakeholders. The company aims to offer all its existing shareholders the chance to participate in this proposed capital raise and maintain their shareholding without the need to ascribe valuations.