Byju’s has a Rs2,000 crore problem next week to settle the Aakash takeover agreement.

Edtechs are not have the best time of their lives and the most classic representation is Byju’s. India’s largest and most valuable Edtech company just received a lot of flak for reporting a massive loss for FY21, and that too, 18 months after the end of the fiscal year. Now Byju’s has another big challenge on hand. It needs to pay Rs2,000 crore to global PE Fund, Blackstone, and this payment has to be made by the deadline of 23rd September. That leaves Byju’s with just about 7 days to arrange the large sum of money.

What exactly is this payment to Blackstone all about? The payment of Rs2,000 crore is the last tranche of the payment for the purchase of Aakash Education Society. The total deal was worth $950 million and the only pending payment is the pay-out of Rs2,000 crore to Blackstone, which had sold that stake to Byju’s. The total sum of nearly Rs2,000 crore was originally supposed to be paid in June 2022, but after mutual discussions it was agreed upon to defer the payment to 23rd September. Hence, any further concessions are unlikely.

There is an interesting regulatory angle to it. If Byju’s cannot make the payment by 23rd September, then it will also need RBI approval for the extension. That is because; as per RBI guidelines, transfer of equity instruments between a non-resident (Blackstone) and resident (Byju's) has to paid for within a maximum of 18 months. That 18 month window gets over on 23rd September.  Hence, any delay by Byju’s beyond that date would mean going through a very long process of RBI approvals for the extension of payment date.

It may be recollected that back in April 2021, Byju’s had announced the deal to buy out Aakash Educational Services for $950 million in a cash and stock deal. The stake was to be sold by the promoters of Aakash Education and by Blackstone. Post the closure of the deal, Blackstone and Aakash Founders were to hold a minority stake in Byju’s as part of the stock swap. Blackstone current holds 0.2% in Byju’s and post the stock swap deal on Aakash Education Services. Blackstone will end up with nearly 1.2% stake in Byju’s.

In the recent past, several large investors who had committed to invest in Byju’s had either backed out or in some cases they had committed but not brought in the funds, like Sumeru Capital. In many cases, the investors were not happy with the valuations and felt that it was too steep. With the massive loss of Rs4,588 crore for FY21, this problem is only going to become more acute for Byju’s. The question is how will they bankroll this pay-out, because in the current scenario it is not easy to raise Rs2,000 crore for an Edtech company in India.

According to market sources, Byju’s is in advanced talks to raise $500 million in the market and the deal is almost through. However, as we have seen in this business, there is many a slip between the cup and the lip and nothing can be said for sure till the time the funds actually comes in. The problem for Byju’s is that it does not have too much time and it has to close the payment before 23rd September if it has to avoid the legal hassles of another round of approvals from the RBI and to seek an extension. That would be best avoided.

It may be recollected that Blackstone had purchased 37.5% stake in Aakash Educational Services in the year 2019. Back then, the deal had valued offline education giant, Aakash Education Services at $500 million. Now, with Byju’s buying out the firm at $950 million valuation, Blackstone is set to double its investment in Aakash in just about 3 years. That looks like a good deal for Blackstone for sure. However, the million dollar question is whether Byju’s can raise the money. It would be a litmus test for Byju Raveendran.