The Indian edtech sector, once a poster child for innovation and growth during the lockdowns, is facing a harsh reality check. HSBC has delivered a grim prognosis for Indian edtech giant Byju’s, assigning zero value to Prosus’ stake of nearly 10% in the edtech company. This harsh assessment comes amidst Byju’s escalating legal battles and deepening financial crisis. Byju’s was, at its peak, valued at $22Bn.

For those who are unaware, Prosus, a Netherlands-based technology investment company, had previously injected a total of $500 million into Byju’s, marking one of its largest bets in the Indian edtech sector. However, the tide has turned dramatically since then, and in a note to investors dated May 21, HSBC outlined its decision to assign zero value to Prosus’ stake. “We assign zero value to Byju’s stake amid multiple legal cases and funding crunch,” the note stated. Previously, HSBC had applied an 80% discount to the latest publicly disclosed valuation of the stake, but the escalating crises at Byju’s have prompted this new revaluation.

The fall from grace for Byju’s has been dramatic. Once the most valuable startup in India, the company’s valuation has plummeted due to its financial and legal challenges. HSBC’s report indicates that Byju’s is now valued at zero, a stark contrast to its previous high valuation. This devaluation has been echoed by other investors, such as BlackRock, which has also written off its investment in the company.

Speaking of escalating crises, the edtech major currently embroiled in numerous legal disputes that compound its financial distress. The company’s recent $200 million rights issue, priced at an overwhelming 99% discount from its peak valuation, has further aggravated investor concerns. Although founder Byju Raveendran claims that the rights issue is fully subscribed, the National Company Law Tribunal (NCLT) in Bengaluru has mandated that a significant portion of the raised capital be placed in an escrow account due to ongoing disputes with investors, including Prosus.

And if this is not enough, matters were further complicated after Byju’s has initiated legal action against Prosus and other investors, seeking the removal of Raveendran as CEO. This litigation is currently before the Karnataka High Court, and comes at a time when the departure of India CEO Arjun Mohan in April has left Raveendran to oversee daily operations personally, stretching the leadership thin at a critical juncture. Moreover, Byju’s is engaged in legal battles in the United States concerning a $1.2 billion term loan B. The situation took a turn for the worse when a group of lenders reportedly petitioned a US court to initiate involuntary Chapter 11 bankruptcy proceedings against Byju’s subsidiaries that guaranteed the loan – Epic, Tynker, and Osmo — which were guarantors for the syndicated term loan.