Byju’s to go ahead with rights issue after NCLT defers decision on investors’ plea; but there’s a catch

MUMBAI: The National Company Law Tribunal (NCLT) on Tuesday reserved its judgement on the plea filed by a few of Byju’s investors seeking the court’s intervention to declare the firm’s rights issue as void and the founders as unfit to run the company, citing oppression and mismanagement.
This essentially allows the company to go ahead with the rights issue which closes on February 28 but the company that is reeling under a cash crunch may not be able to immediately use the proceeds raised through the issue.The NCLT, investor sources said, has observed that Byju’s board cannot increase authorised share capital on its own for the rights issue.
“The court directed that they (Byju’s) cannot complete the rights issue until they call for an EGM (extraordinary general meeting) to increase authorised capital and take shareholder approval before proceeding for rights issue. In response, Byju’s gave an undertaking to the court that they will not use the proceeds of the rights issue until the authorisation has been secured.
The company is banking on its rights issue to raise capital and meet its current liabilities. It aims to secure $200 million through the issue at a valuation of $225-$230 million, a 99% drop from its peak valuation of $22 billion.
A few of the firm’s disgruntled investors including Prosus, Peak XV Partners and General Atlantic are yet to participate in the rights issue. If they don’t participate, their shareholding will get diluted. In the court, lawyers representing the investors are learnt to have argued that they have no visibility on how the funds raised through the rights issue will be used given there are so many ongoing investigations against the company.
“$533 million (the money raised as part of term loan which Byju’s Alpha allegedly transferred in an obscure hedge fund) has been siphoned off. He (Byju Raveendran) wants us to invest more money. How will we be protected? 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 end of 2023 asking for information,” the investors’ lawyers argued, adding that the company will not survive solely on the basis of the money coming in from the issue.
The NCLT has asked both the parties to provide written submissions of their arguments in three days. Byju’s has proposed to park the money raised through the rights issue in a fresh account so that it can be monitored. In a recent letter to shareholders, founder and CEO Raveendran had said that the startup will appoint a third-party agency to monitor the usage of funds raised through the issue. The NCLT petition has been signed by Prosus, General Atlantic, Sofina and Peak XV Partners along with support from other shareholders including Tiger Global and Owl Ventures. Through the petition, the investors are also seeking a forensic audit of the company and a directive to be issued to the startup against taking any corporate actions that will prejudice the rights of the investors.
Byju’s is locked in a bitter fight with its investors, majority of whom voted to oust him as the CEO and restructure the firm’s family-run board. The company claims that only 35 of 170 shareholders, representing around 45% of the shareholding voted in favour of the resolution passed at last week’s EGM. In a letter to employees, Raveendran said that he remains the CEO of the company and will challenge these “illegal and prejudicial actions.”