Byju’s wants to restructure loans amidst cash crunch
The troubles at edtech companies were visible for quite some time with big names like Vedantu, Upgrad and Byju’s among the big names to lay off a chunk of their employees. That was triggered by consumers preferring the traditional offline education once contact intensive interactions were permitted. However, that was just the beginning. In the last few months, other problems like unwillingness of PE funds to finance these projects, rising losses, weak revenues and persistent cash burn have been major challenges. In the latest salvo, it has emerged that Byju’s is trying to restructure its $1.2 billion loan.
The reasons are not far to seek. Byju’s has been struggling with continuous cash burn and weak revenues for a long time now. Now the cash crunch is also starting to pinch. Apparently, Byju’s had got a valuation of $22 billion in its last round of fund, but that enthusiasm was not shared by the likes of Prosus, which is a key investor in Byju’s. The fund had written down the valuation of Byju’s considerably in its books, pegging the valuation of Byju’s in single digits. Now the real issue is that servicing high levels of debt and frenetic growth is becoming a real challenge. The attempt to restructure its $1.2 billion is the latest indication that all is now hunky dory at India’s most valuable new age digital start-up.
Now, it emerges that Byju’s has appointed an adviser to discuss tweaks in covenants of the term loan agreement with creditors. While granular details are not yet available, what emerges is that Byju’s exploring possibilities wherein the rate of interest on the loan can be reduced and also the tenure of the loan can be extended to give Byju’s more time to repay the money. It remains to be seen what the banks and lenders agree to. However, as of date, the lenders have not agreed to any of the proposed covenants, at least not in the current macroeconomic circumstances. They are looking for better revenue and profit visibility.
When the lockdown was announced in 2020 in the middle of the COVID pandemic, Byju’s and other edtech start-ups were among the major winners of the race. Back then, Byju’s thrived in a big way on grater demand, growing mobile connections and overseas investments. In the last few quarters, this blistering pace of growth has been rudely cut short as the markets are now refusing to buy this story of cash drain to boost sales. Most of the PE funds and lenders are not comfortable treating capital as a proxy for revenues an eyeballs as a proxy for profits. Incessant cash burn cannot be sustained for sure.
The problem for Byju’s is that its loans are linked to the LIBOR and is currently priced around 550 basis points above the LIBOR. This is one of the largest such fund raising efforts and that too at such high spreads. The sharp rise in interest rates across the globe has led to the LIBOR moving up rapidly leading to a sharp spike in its debt costs. Earlier, the company had faced another problem after its margin on the loan was raised by an additional 50 basis points after its parent company, Think & Learn Private Limited, failed to get rated. At its peak, the loan had procured strong demand from banks, sovereign funds and even from wealth funds, keen to get a share of the digital action pie in India.
There are already signals of likely default after the loan traded at 64.5 cents in September. Since then, the pricing has bounced back to 80 cents, but it is still not a very comfortable scenario and raising doubts about their debt servicing capacity. Things came to a head after the company reported a net loss of Rs. 4,500 crore for FY21. It is yet to announce the financial results for the financial year 2021-22, with nearly 9 months of the new fiscal already gone. The company had shed nearly 5% of its workforce in October this year and is now planning few more rounds of lay offs to restructure and rationalize its workforce. Clearly, expensive acquisitions and cash burn is coming home to roost for Byju’s.
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