Prosus Writes Off $493M Stake in Byju’s Amid Continued Financial Woes

New Delhi : Dutch-listed technology investment firm Prosus has written off its 9.6% stake in Byju’s, highlighting the ongoing financial struggles within the Indian edtech giant. In its annual report for FY24, Prosus cited a “significant decrease in value for equity investors” as the reason for this decision, resulting in a fair value loss of $493 million recognized in other comprehensive income.

Prosus has invested $500 million in Byju’s over the years, marking one of its largest edtech bets in India. However, the firm’s optimism has soured as Byju’s faces a severe cash crunch and multiple legal challenges. As of March 2023, Prosus had valued Byju’s at approximately $5.1 billion. The firm also marked down its investment in Primrose Hill (ZestMoney) to zero, a stark contrast from its $38 million valuation in FY22.

In a post-earnings call, Prosus interim CEO Ervin Tu emphasized the need to protect the rights of all shareholders. “We are seeking protection of our rights and all shareholders. There are a number of actions that Byju’s and the company’s management has taken. We have hope for the company’s outlook. The key for us is to change the governance at the company. That is the first step,” Tu stated.

This declaration by Prosus aligns with HSBC’s assertion on May 21 that the investment firm’s nearly 10% stake in Byju’s held no value due to the deepening cash crisis and ongoing legal issues. HSBC had previously applied an 80% discount to the latest publicly disclosed valuation of Byju’s.

“Edtech is a very broad sector, including K-12 (kindergarten to grade 12) education, corporate skilling and so on. It’s very broad, and the three businesses (Byju’s and Stack Overflow) have not performed as expected…The priority everyone expects of us is to fix, fix, and fix,” Tu told analysts after declaring results for April-September 2023 in November last year.

Adding to its challenges, Prosus is engaged in a legal battle with Byju’s in the Karnataka High Court. The conflict arose after Byju’s filed a petition against a group of investors regarding an extraordinary general meeting that sought to remove CEO Byju Raveendran. On June 23, Byju’s contested a National Company Law Tribunal (NCLT) order that barred the company from proceeding with its second rights issue. The NCLT’s directive, dated June 12, required Byju’s to maintain the status quo in its shareholding, effectively halting its contentious rights issue and mandating that all funds from the first rights issue be placed into an escrow account.

The $200 million rights issue, conducted at a 99% discount from Byju’s peak valuation of $22 billion, has sparked protests from investors such as Peak XV Partners and Prosus. On April 23, these investors claimed in the NCLT that Byju’s had violated the tribunal’s order by utilizing proceeds from the rights issue and issuing shares to subscribers without increasing its authorized share capital.

Despite the setbacks with Byju’s, Prosus reported that its investments in other Indian companies have yielded mixed results. The internal rate of return (IRR) for the online pharmacy startup Pharmeasy is at a negative 35%. However, investments in firms such as business-to-business (B2B) e-commerce platform ElasticRun, e-commerce firm Meesho, fintech firm PayU India, and edtech firm Eruditus have performed well.