Manipal Group in talks to invest in Byju’s-owned Aakash

Bengaluru: Manipal Group Chairman Ranjan Pai is in early discussions to invest in Byju’s-owned Aakash Educational Services Limited (AESL).

According to sources in the know, Byju’s founder and Chief Executive Officer Byju Raveendran, who owns a 30 per cent stake in Aakash, is expected to partially offload his holding to Pai for $80-90 million (about Rs 650-740 crore).

Raveendran may use the money to repay a large part of the Rs 800 crore loan that Byju’s raised from US-based investment firm Davidson Kempner Capital Management in May, after facing a ‘technical default’, the sources said.

Pai, one of Byju’s early investors, had first invested in the edtech start-up in 2011 through his venture capital fund Aarin Capital. Aarin eventually exited the company.

“This time Pai is in talks to invest through his family office,” said a person aware of the matter.

Pai recently sold a significant part of his stake in Manipal Health Enterprises to Singapore’s sovereign wealth fund Temasek.

The fund later bought an additional 41 per cent in Manipal Health for more than Rs 16,300 crore ($2 billion), taking its total shareholding to 59 per cent in one of the country’s largest hospital chains.

Byju’s is also looking to raise another $200 million for Aakash as part of the funding round and is in talks with various sovereign wealth funds, according to the sources.

Byju’s was expected to raise a total of Rs 2,000 crore ($250 million) from Davidson Kempner. But the legal battle between Byju’s and its lenders in the US over the edtech firm’s $1.2 billion term loan B (TLB), along with the company skipping an interest payment of $40 million on the loan, made the investment firm “extremely concerned” and was considering stopping or slowing down the flow of various tranches of that capital, they said.

The capital from Pai is expected to help Byju’s release the pledge on shares of Aakash, which were offered as collateral for the Davidson Kempner loan.

In 2021, Byju’s acquired 33-year-old brick-and-mortar coaching centre AESL for nearly $1 billion in a cash-and-stock deal. Despite Byju’s itself posting losses of Rs 4,588 crore in FY21, 19 times more than the preceding year, Aakash has been the best-performing acquisition of the edtech giant.

Legal notice to Chaudhry family

Meanwhile, Think and Learn Pvt Ltd (TLPL), which operates under Byju’s brand, has sent a legal notice to the Chaudhry family, the founders of AESL, following their alleged resistance to complete the share swap that was unconditionally agreed as part of its sale, according to a report by PTI.

Reasons for their reluctance to do a share swap include due diligence and corporate governance issues, Byju’s inability to file its financials, legal battle with lenders, challenges in raising fresh capital, and a markdown in its valuation by investors.

The share swap was an integral part of the acquisition agreement, which took place in 2021, when the Chaudhry family sold AESL to TLPL for a combination of cash and shares. The intention was to effect the share swap through the merger of AESL with TLPL, allowing for enhanced tax efficiency for the seller, the Chaudhrys, according to the PTI report, which quoted sources. However, due to delays in the proposed merger by the National Company Law Tribunal (NCLT), TLPL has invoked the unconditional fallback agreement and issued a notice to the Chaudhrys, requesting the execution of the swap deal.

Upon completion of the existing share swap obligation, the Chaudhry family’s stake in TLPL would be slightly below 1 per cent. The Chaudhrys could face demands from the tax authorities, including on GST, in the swap deal.

Legal experts said that if the issue is not resolved amicably, the implications could include reputational damage for both companies and court proceedings.

“Implications could include potential reputational damage for both companies. It also reflects conflicts between the parties post-acquisition, which might hamper the integration and mutual benefit envisioned in the merger,” said Sonam Chandwani, managing partner, KS Legal & Associates.