Zilingo’s co-founder and CEO Ankiti Bose, who was recently suspended from her position at the B2B e-commerce start-up, is exploring recompensing the company’s entire outstanding debt worth $40 million. This would provide her with an option to gain more equity in the firm, two people aware of the discussions said.
However, according to an investor in a venture debt firm based in Asia, Bose’s endeavour to acquire more shares in the company could be met with a pushback from the board, and eventually lead to a legal tussle if the warrants were to be sold to her.
Sources told FE that Bose had already reached out to Varde Partners and Indies Capital with a term sheet to pay back the entire pending loan amount. Varde and Indies together provided a loan of $40 million to Zilingo under Ankiti’s leadership in July 2021, which is valid till July 2023, the sources added.
If the term sheet goes through, Bose will get access to convertible notes currently owned by the two debt providers, which could further shore up her shareholding in the firm.
“The company was supposed to make repayments on a 90-day cycle, however, after Bose’s suspension in April, the company missed the repayment which was due in the same month,” one of the people aware of the talks between Bose and the debt providers said.
A second person added that both Varde and Indies own warrants on the loan which is transferrable to any buyer under the earlier terms signed between Zilingo and the debt providers. In the venture debt context, a warrant is a security that gives the holder the right to purchase the company’s equity stock at a specified price within a specific period of time. But these warrants are executed only when the investors see an additional gain and are not necessarily used for reclaiming the debt amount.
As is known on May 13, Zilingo’s creditors decided to recall their entire loan, which prompted the start-up to appoint a financial adviser to evaluate options to deal with the default. In a statement on the same day, Zilingo’s board said that “due to Zilingo’s failure to fulfil prior obligations under the loan agreement, the company’s lenders have made the decision to accelerate the repayment of the entire loan”.
“The investigation into allegations against Ankiti Bose, the CEO of Zilingo, is close to being finalised,” the Zilingo board had said in a statement on May 13.
“Ankiti will essentially get technical access to these warrants owned by both the venture debt firms, and she can also get the legal right to exercise this. The debt providers are wary of the fact that a replacement for Ankiti was not found even 45 days after her suspension with no outcome into the investigation yet. Hence, they have decided to recall the entire loan amount,” one of the sources quoted earlier said.
Zilingo and Indies Capital did not respond to emails seeking comments till the time of going to the press. Varde Partners declined to comment on the story.
Sources also said that Bose has already met with a few institutional investors and hedge funds based in Singapore and India to raise the $40 million required to buy back the warrants and to pay the remainder of the principal amount in full to Varde Partners and Indies Capital.
Currently, Bose owns around 8.3% of Zilingo.
“Technically in the US and in India, venture debt providers get the first preference when there are liquidity events or when there is an unforeseen shutdown. There have been instances of debt providers using distressed scenarios of companies to take over the company, but that all is only possible if it’s proven in court or legally that the company has no money left to service back the loans taken,” the investor said.
A loan recall event in the venture debt context as seen in the case of Zilingo, only happens as a last straw, when the lenders are convinced that the company is not in a position to repay the creditor or has no money left in the bank, the investor said.
“A recall means that the company has the right to recall the entire loan amount, extinguishing the quarterly payment structure. As per standard agreements, if the lender exercises the right to recall, the company has to pay the full outstanding amount in a 30-60 period and is only used as the last straw to recover their money,” the investor added.
Thirty-year-old Bose, who has been at the helm of the company since its inception in 2015, is facing allegations of financial irregularities, with the board accusing her of inflating revenues. In a statement in early April, Bose termed the board’s suspension and allegations against her as a “witch hunt” and refuted all the claims made by the board.
The B2B start-up, which offers a tech platform for fashion retailers to source wholesale supplies, has been one of the most celebrated start-ups to emerge from SEA geography. However, the start-up’s CEO has been kept under suspension currently, with the board launching a full-fledged audit into the accounting books, according to earlier reports.
Zilingo is one of Sequoia Capital India’s key investments in the South East Asia region, and the start-up entered the unicorn club when it raised a $226-million Series D round in April 2019.
The allegations against Bose emerged after the start-up began the internal process to raise $200 million in funding led by Goldman Sachs Group, which has now been discontinued. Last month, a source aware of these funding talks told FE that the start-up submitted all key financial statements for a due diligence process. The company currently has enough cash in the bank for the next 15-18 months, FE reported last month.