Prosus' 10% Stake in Byju's Deemed Worthless by HSBC Amid Cash Crunch and Legal Battles

In a significant development, Dutch-listed technology investment firm Prosus' nearly 10% stake in Indian edtech giant Byju's has been deemed worthless by HSBC. This assessment reflects the deepening cash crunch and mounting legal troubles at Byju's, which has been embroiled in multiple legal cases and funding challenges.

HSBC's note on May 21 stated, "We assign zero value to Byju’s stake amid multiple legal cases and funding crunch." Previously, HSBC had valued the 10% stake with an 80% discount to the latest publicly disclosed valuation. Over the years, Prosus has invested $500 million in Byju's, making it one of its largest bets in the Indian edtech sector, which has unfortunately soured.

The HSBC report comes at a critical time for Byju's, which is conducting a controversial $200 million rights issue at a staggering 99% discount to its peak valuation of $22 billion. This means that any investor not participating in the rights issue will see their holdings effectively wiped out. Byju's founder, Byju Raveendran, has claimed that the rights issue is fully subscribed. However, an ongoing dispute with investors, including Prosus, has led the National Company Law Tribunal (NCLT) in Bengaluru to direct the company to place the majority of the capital from the rights issue into an escrow account.

Adding to Byju's legal woes, Prosus is embroiled in a legal battle with the company in the Karnataka High Court. Byju's has filed a petition against a group of investors seeking to remove CEO Byju Raveendran from the company. The matters in NCLT Bengaluru and the Karnataka High Court continue to be heard, exacerbating the legal troubles for the Peak XV Partners-backed firm.

Byju’s is also grappling with operational challenges due to the cash crunch. The departure of India CEO Arjun Mohan in April has left Raveendran to manage the daily operations of the Indian business.

Moreover, Byju's is fighting legal battles in the US with its term loan B lenders over a $1.2 billion loan. On June 5, a group of lenders petitioned a US court to initiate bankruptcy proceedings against Byju’s subsidiaries, Epic, Tynker, and Osmo, which were guarantors for the syndicated term loan.

As Byju's navigates these turbulent waters, the company's future remains uncertain, with significant implications for the broader edtech sector in India.