Byju’s the ed-tech major company founded by Byju Raveendran has pledged all of the homes owned by him and his family as a collateral in a loan aimed to pay off the salaries of the staff at his company.
According to a report in Bloomberg, two homes owned by Raveendran’s family in Bengaluru and his under-construction villa in Epsilon in the city were offered as collateral to borrow $12 Million, and the funds were used to pay salaries to around 15,000 employees of Byju’s parent firm, Think & Learn Private Limited.
The edtech company has been facing a lot of challenges, including financial crunch. The company is also fighting a legal battle over a missed interest payment on a $1.2 Billion term loan.
Raveendran has pledged all his shares in the parent company and has raised debts of about $400 Million, according to the Bloomberg report. He also returned to the company the $800 Million he had raised through share sales in the past years, leaving him cash-strapped.
Challenges for Byju’s began last year when the company had to lay off 2,500 employees to save funds. Earlier this year, the ed-tech company laid off around 1,000 employees and asked other employees to resign voluntarily.
On the other hand, Byju’s has even deferred offer letters to incoming employees for six months, according to Business Today. Some employees, who were set to join the company, said their offer letters had been postponed, with some individuals being informed that their joining has been further delayed until January 2024.
On November 21, the Enforcement Directorate (ED) found alleged forex violation by Byju’s amounting to Rs 9,000 crore, following searches at three premises in Bengaluru in a case related to Raveendaran and his company ‘Think & Learn Private Limited’ under the provisions of the Foreign Exchange Management Act (FEMA) in May. Byju’s had denied reports linking it to FEMA.
How did Byju’s land in this financial crisis?
The Enforcement Directorate (ED) said the adjudicating authority under the Foreign Exchange Management Act(FEMA) has issued show-cause notices to Think & Learn Private Limited, the parent company of BYJU’S, and CEO Byju Raveendran on the basis of a complaint filed against them for alleged contraventions of FEMA to the tune of Rs 9,362.35 crore.
The agency said it had initiated investigation on the basis of various complaints regarding foreign investments received by the company viz M/s Think and Learn Private Limited and the business conduct of the firm.
There are also rumours that Byju’s hid more than $550 Million in obscure hedge funds. The lenders of the fund went on record and it was reported by multiple news outlets.
“The company was also stated to have made significant foreign remittances outside India and investments abroad, which were allegedly in contravention of the provisions of FEMA, 1999, and caused loss of revenue to the Central government,” an ED spokesperson said.
“Based on the information, the ED conducted property searches in M/S Think & Learn and also at Raveendran’s residence. It seized documents pertaining to all investments received by the company as well as documents pertaining to the overseas investments made by it,” the spokesperson said.
“During the investigation by ED, statements of Raveendran and the Chief Financial Officer of M/s Think and Learn Private Limited were recorded. On conclusion of the investigation, it was found that M/s Think & Learn Private Limited and Raveendran had contravened the provisions of FEMA by failing to submit documents of imports against advance remittances made outside India, by failing to realise the proceeds of exports made outside India, by delayed filing of documents against the Foreign Direct Investment (FDI) received into the company, by failing to file documents against the remittances made by the company outside India and by failing to allot shares against FDI received into the company,” the spokesperson said.
What was the role of Byju’s investors and employees in this challenging crunch they are facing right now?
Trouble mounted for Byju’s as Prosus NV, an investor in the edtech startup, asserted that the company’s reporting and governance structure did not evolve sufficiently for an entity of this scale and it “regularly disregarded advice” by the Dutch-listed firm.
“Despite repeated efforts from our director, executive leadershipat Byju’s regularly disregarded advice and recommendations relating to strategic, operational, legal, and corporate governance matters,” it said.
This year, Prosus slashed the valuation of Byju’s to $5.1 Billion from $22 Billion last year. Raveendran’s rise from a private tutor to the leader of a $22 Billion company captivated global investors, including Sequoia Capital, Blackstone Inc., and Mark Zuckerberg’s foundation. The firm ordered a majority of the ed-tech market during the Covid pandemic.
By the middle of 2022, problems began to compound. Employees questioned Raveendran’s business instincts: Even as the lifting of Covid restrictions battered ed-tech, he sought to raise more equity — rather than conserve cash and target profitability.