The Byju’s story appears to be unravelling in India, and its foreign entities aren’t faring much better.
Byjus’ American arm has filed for bankruptcy after defaulting on a debt of $1.2 billion, Mint reports. Alpha Inc, Byju’s Special Purpose Vehicle in the US, initiated Chapter 11 insolvency proceedings in a Delaware court, stating that the company had no funds to defend itself against litigation. Earlier this month, Byju’s Indian lenders had also filed an insolvency application before the Bengaluru bench of the National Company Law Tribunal, citing loan defaults.
Byju’s American arm, named Alpha Inc, was founded three years ago as a special purpose vehicle. The entity had received a $1.2 billion loan from lenders to finance Byju’s international acquisitions. But the lenders were unhappy that Byju’s hadn’t provided its subsidiary WhiteHat Jr, then worth an estimated $300 million, as a guarantor for the loan. The lenders had consequently seized control of Alpha Inc, removing Byju Raveendran’s brother Riju Raveendran as director, and installing Timothy Pohl in his place. The lenders had also alleged that Alpha Inc under Byju’s had transferred $553 million of their money to a separate entity to “to conceal the whereabouts” of the cash.
Byju’s had embarked on an ambitious acquisition spree after the pandemic. In India, the company had acquired WhiteHat Jr for $300 million, online test preparation startup Gradeup, Great Learning for $600 million, and Toppr for $150 million. Internationally, it had acquired US-based kids’ coding platform Tynker, Austria-based GeoGebra, US-based kids reading startup Epic, Norway-based learning games company Osmo, and online tutoring brand TutorVista. These acquisitions had cost Byju’s over $2 billion.
But as the pandemic had ebbed away, Byju’s realized that it became hard for it to raise further rounds of funding, and its own valuation, along with the valuations of its acquired companies, crashed. This meant that Byju’s was unable to pay off the loans it had taken to finance these acquisitions. To make matters worse, Byju’s losses spiraled out of control, and Byju’s had been forced to lay off thousands of employees. Around this time, questions had been raised in Indian parliament about Byjus’ alleged mis-selling of courses to economically vulnerable parents, and even the country’s child rights body had summoned CEO Byju Raveendran for questioning.
But things kept getting worse — not long after, the Enforcement Directorate had raided CEO Byju Raveendran’s home, and seized incriminating documents over violation of foreign exchange laws. Since then, Byju’s has seen its valuation marked down by several investors, and the company had tried to restructure its loan obligations. Not long after, 3 of Byju’s board members had resigned in unison over concerns over its corporate governance , and a day later, its auditor, Deloitte, had also resigned. The ED had also issued the company a show-cause notice for contravening FEMA guidelines to the tune of Rs. 9,000 crore, and the company had been taken to NCLT court by BCCI over missed payments of its team India sponsorship which it had eventually transferred to Dream11. Byju’s had then been forced to launch a rights issue at a valuation of $225 million, 99 percent below its peak valuation of $22 billion.
Byjus’ US unit has now filed for bankruptcy. The bankruptcy could, though, be a strategic move — it could help Byju’s to halt all proceedings against it in the US, and give it time to repay creditors, either by selling some assets, or raising fresh funds. But given all the troubles that are swirling around Byju’s, and talk of the removal of the Raveendran family from the company, the US bankruptcy is yet another headache for Byju Raveendran as he struggles to keep his flailing company afloat.