Top investors likely to skip Byju’s $200 mn rights issue

Prosus NV, Peak XV Partners, General Atlantic, and Sofina SA had collectively filed a petition with the National Company Law Tribunal last week against the rights issue, seeking reprieve citing oppression and mismanagement of the company. These four investors collectively hold around 25% stake in the company.

The tribunal on Tuesday deferred its verdict on the case to next week, which, in effect, means Byju’s can go ahead with its rights issue.

Byju’s is likely to go ahead with the rights issue on Wednesday, said a person with knowledge of the company’s plans.

Spokespersons for the investors as well as the company did not immediately respond to queries seeking comment.

“Most serious investors of the company are unlikely to participate in the rights issue," one person with knowledge of the developments said.

Byju’s has said that it already has secured commitments for the rights issue.

The investors are now betting on a court instruction that Byju’s founders will have to seek approval from the existing investor base to expand the share capital of the company. 

“NCLT observed that Byju’s board cannot increase authorised share capital on its own (for the rights issue). The court directed that they cannot complete the rights issue until they call for an (extraordinary general meeting) to increase authorised capital and take shareholder approval before proceeding for rights issue," a third person said. 

Byju’s has given an undertaking to the court that it will not use the proceeds of the rights issue until the authorisation is secured.

As part of the procedure, the company needs to call a fresh EGM to secure approval from its current investor base on the rights issue.  

Byju’s investors are also banking on several procedural technicalities to argue that the rights issue is invalid in its current form. 

“The rights issue offer letter was not issued in accordance with Section 62 of the Companies Act 2013," said a fourth person briefed on the matter. “Under Section 62, a letter of offer must be posted at least three days earlier than the date of opening of issue. However, the company has only given two days’ notice–i.e., the notice was given on 27 January for the offer opening on 29 January."

The investors also argue that the board meeting of 27 January, where the current board claims to have passed the rights issue, is not valid as no such resolution was passed. 

“This meeting was scheduled as an investor update call and the investors had disputed such rights offer to be rolled out without the company giving them enough information on the financials and other matters," said the fourth person quoted earlier.

“We have requested the company to provide information covering a broad range of matters. There are 13 letters we have written between the end of 2022 and the end of 2023 asking for information," this person said, adding that this was informed to the tribunal as well. 

Byju’s, which was once valued at $22 billion, has proposed to raise $200 million through a rights issue at a nominal valuation of $25 million. The non-participation of some investors would result in their holdings in the company getting diluted to near zero post the conclusion of the rights issue.

“The NCLT was not inclined to issue any order today. That means the rights issue can proceed as planned and will close tomorrow," said the first person familiar with Byju’s plans. 

The company had on February 21 said the rights issue was fully subscribed with commitments from investors that were willing to participate. These investors are likely to wire in their money on Wednesday. 

Think and Learn has over 100 investors on its capitalisation table.

The company is raising the money to tide over its liquidity crisis where it has mounting liabilities from debtors, vendors and former and current employees to the tune of $175-180 million. The company has in the past struggled to wire salaries and even pay provident fund for employees.

The NCLT registry will give a date and pass an order basis the written submissions made by both the parties. The matter is likely to come up for hearing next week.