Ranjan Pai turned saviour for Aakash; so why are investors upset?

American private equity major Blackstone, a shareholder of Aakash, and global investment group Prosus NV, a shareholder of the parent entity Think & Learn, have written to the board to communicate their dissent. Prosus has also sent a legal notice to Pai, who is the chairman of Manipal Education and Medical Group.

Last week, the board of Aakash, led by chartered accountant Shailesh Haribhakti, had approved the conversion of Pai’s $250-300 million debt in Aakash to equity in a board meeting. However, while the conversion is approved, it is not complete as certain processes remain to be followed.

“The working committee of investors (of Byju’s) has registered its disapproval," one of the people cited above said on condition of anonymity. This is because their shareholding in the parent takes into account the valuation of subsidiary Aakash.

The shareholders’ main objection is that the conversion was approved at a lowered valuation of ₹4,500-4,800 crore (around $600 million). This is far lower than the price Byju’s paid in 2021 when it acquired Aakash for around $950 million.

Many others, including those participating in Think & Learn’s upcoming rights issue, have also expressed concern at the lowered valuation of Aakash, the people cited above said.

The ongoing conversion proposal takes Pai’s stake in Aakash Education Services to 38.6-39.6%, while that of parent entity Think & Learn falls to 27% from 43%.

Blackstone and Aakash Education Services founder Aakash Chaudhry will see their cumulative stake reduced to 18% from 30%. Byju’s founder Byju Raveendran will see his personal stake in Aakash fall to around 16% from 27%.

The issue at hand dates back to May 2023, when Raveendran raised debt capital against a part of his shares in Aakash at onerous terms from global lending firm Davidson Kempner. Fearing a loss of control over the test prep subsidiary, Raveendran brought in Pai to acquire the debt held by Davidson Kempner. At that point, Kempner had reconstituted the Aakash board.

The objections of some dissenting shareholders are of “no consequence," one of the people cited above said, as the conversion was approved with no dissension by the board where Think & Learn had four votes, and Pai had two votes (which were previously held by Davidson Kempner).

Prosus, Blackstone, Chaudhry, Think & Learn and Pai did not respond to requests for comment.

“The shareholders of Aakash already approved the conversion of debt to equity when it was held by Davidson Kempner," the second person cited above said, arguing that Pai only stepped into the shoes of Davidson Kempner. This was disputed by one person sympathetic to the dissenting shareholders, who said that fresh shareholder approval was needed.

However, Byju’s and Aakash executives are working on measures to placate the shareholders and find a working solution with all on board. “There were meetings with more than two dozen key shareholders last week, where the conversion was discussed," the person said. “It is possible a solution may be found at a higher valuation."

The outcome of this slugfest will have a bearing on the rights issue that Think & Learn is planning in the coming month. The shareholders of the company, though ready to back Think & Learn at a lower valuation, want to be sure about who Aakash, which is likely to go public over the next few years at a higher valuation, rests with.

Byju’s, which has been battling multiple adversities in the past 12-18 months, finally announced its FY22 results after a delay of more than 22 months. The Bengaluru-based edtech company’s losses ballooned to ₹8,245 crore from ₹4,564 crore in the year prior. Its consolidated income, on the other hand, rose to ₹5,298.43 crore in FY22, up from ₹2,428.39 crore in the year prior.

The company is likely to announce its FY23 results soon, Nitin Golani, its chief financial officer, had told Mint in a previous interview.