The National Company Law Tribunal (NCLT) asked ed-tech company Byju’s to consider extending the closing date of its contentious rights issue beyond February 28 on Wednesday while also directing it to keep the funds untouched. The tribunal’s Bengaluru bench asked the company to keep the funds collected through the rights issue in a separate escrow account and also told them to not use them for any purposes. It said that the funds “should not be withdrawn till the disposal of the matter”.
A person familiar with the company’s strategic moves, however, informed that the company will not extend the deadline since the court has not directed it to do so and instead, asked to “consider” an extension.
What Is A Rights Issue?
A rights issue is an offer made to existing shareholders to purchase additional new shares in the company at a discounted price. Since the issue gives existing shareholders securities called rights., it has been named a rights issue. The shareholders, with these rights, are allowed to purchase new shares at a discount to the market price on a given future date.
Companies most commonly issue a rights offering in situations where there is a requirement for a rise in additional capital. This happens when a company needs extra capital to meet its current financial obligations. The companies, in trouble, typically use rights issues to pay down debt.
However, this is not the only case when companies pursue rights offerings. Sometimes, the ones with clean balance sheets may also use rights issues in a move to raise extra capital to fund expenditures designed to expand the company’s business. Using the extra capital for the expansion of the fund can eventually lead to increased capital gains for shareholders of the company.
Coming back to Byju’s, the company needs to call an extraordinary general meeting (EGM) within 30 days. In the meeting, the ed-tech company must secure 51% of the votes to expand its authorised share capital. The tribunal will hear the matter next on April 4.
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