Byju’s to proceed with rights issue after NCLT defers decision on investors’ plea; But there is a problem. india business news
Mumbai: National Company Law Tribunal (NCLT) reserved its decision on Tuesday plea Filed by some people of BYJU’s investors Court intervention is being sought for the firm’s announcement rights issue It was struck down as void and the founders unfit to run the company, citing harassment and mismanagement.
This essentially allows the company to go ahead with the rights issue which will close on February 28, but the cash-strapped company may not be able to immediately utilize the proceeds raised through the issue. Investor sources said, NCLT has observed that the Byju board cannot increase the authorized share capital on its own for the rights issue.
“The court directed that they (BYJU) cannot complete the rights issue unless they call an EGM (extraordinary general meeting) to raise the authorized capital and take shareholder approval before proceeding with the rights issue. In response, Byju’s gave an undertaking to the court that they would not use the proceeds of the rights issue until authorization was secured.
The company is relying on the rights issue to raise capital and meet its existing liabilities. It aims to secure $200 million through the issue at a valuation of $225-$230 million, which is 99% below its peak valuation of $22 billion.
Some of the company’s dissenting investors, including Prosus, Peak XV Partners and General Atlantic, have not yet participated in the rights issue. If they do not participate, their shareholding will be reduced. Lawyers representing investors in the court are understood to have argued that they have no visibility on how the money raised through the rights issue will be utilized, as there are multiple investigations going on against the company.
“$533 million (funds raised as part of a term loan which Byju’s Alpha allegedly transferred to a shadowy hedge fund) has been withdrawn. He (Byju Raveendran) wants us to invest more money. How will we be protected? We have requested the company to provide information related to a wide range of matters. We have written 13 letters seeking information between the end of 2022 and the end of 2023,” lawyers for the investors argued, adding that the company will not survive solely on the basis of money coming from the issue.
NCLT has asked both the parties to provide their arguments in writing within three days. Byju has proposed to keep the money raised through the rights issue in a new 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 utilization 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 demanding a forensic audit of the company and issuance of directions to the startup against any corporate action that adversely impacts the rights of investors.
Byju’s is locked in a bitter battle with its investors, most of whom voted to remove him as CEO and reconstitute the firm’s family-run board. The company claims that out of 170 shareholders representing about 45% shareholding, only 35 voted in favor of the resolution passed at last week’s EGM. In a letter to employees, Raveendran said he would remain CEO of the company and would challenge these “illegal and prejudicial actions”.
This essentially allows the company to go ahead with the rights issue which will close on February 28, but the cash-strapped company may not be able to immediately utilize the proceeds raised through the issue. Investor sources said, NCLT has observed that the Byju board cannot increase the authorized share capital on its own for the rights issue.
“The court directed that they (BYJU) cannot complete the rights issue unless they call an EGM (extraordinary general meeting) to raise the authorized capital and take shareholder approval before proceeding with the rights issue. In response, Byju’s gave an undertaking to the court that they would not use the proceeds of the rights issue until authorization was secured.
The company is relying on the rights issue to raise capital and meet its existing liabilities. It aims to secure $200 million through the issue at a valuation of $225-$230 million, which is 99% below its peak valuation of $22 billion.
Some of the company’s dissenting investors, including Prosus, Peak XV Partners and General Atlantic, have not yet participated in the rights issue. If they do not participate, their shareholding will be reduced. Lawyers representing investors in the court are understood to have argued that they have no visibility on how the money raised through the rights issue will be utilized, as there are multiple investigations going on against the company.
“$533 million (funds raised as part of a term loan which Byju’s Alpha allegedly transferred to a shadowy hedge fund) has been withdrawn. He (Byju Raveendran) wants us to invest more money. How will we be protected? We have requested the company to provide information related to a wide range of matters. We have written 13 letters seeking information between the end of 2022 and the end of 2023,” lawyers for the investors argued, adding that the company will not survive solely on the basis of money coming from the issue.
NCLT has asked both the parties to provide their arguments in writing within three days. Byju has proposed to keep the money raised through the rights issue in a new 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 utilization 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 demanding a forensic audit of the company and issuance of directions to the startup against any corporate action that adversely impacts the rights of investors.
Byju’s is locked in a bitter battle with its investors, most of whom voted to remove him as CEO and reconstitute the firm’s family-run board. The company claims that out of 170 shareholders representing about 45% shareholding, only 35 voted in favor of the resolution passed at last week’s EGM. In a letter to employees, Raveendran said he would remain CEO of the company and would challenge these “illegal and prejudicial actions”.
