(Bloomberg) -- Creditors to Byju’s, India’s most valuable startup, have pulled out of negotiations with the company to recast a $1.2 billion loan, posing a new setback to the beleaguered tech firm, according to people familiar with the matter.

Most Read from Bloomberg

• China Is Drilling a 10,000-Meter-Deep Hole Into the Earth

• Debt-Limit Deal Wins House Passage, Easing US Default Concerns

• S&P 500 Almost Wipes Out Its Monthly Advance: Markets Wrap

• Hedge Funds Are Deploying ChatGPT to Handle All the Grunt Work

• Elon Musk Again World’s Richest Person as Arnault’s LVMH Sinks

The talks were called off after the creditors moved court, and accused the firm of hiding $500 million of funds raised, the people said, asking not to be named as the information is not public. Lenders can now sell the term loan B securities of the firm as the restraint that came as part of the negotiations is lifted, they said.

The move is a fresh challenge for one of India’s hottest tech companies, which has been working to appease creditors by offering prepayments and higher coupons to restructure the loan. Though the steering committee of lenders has discontinued the talks, the company will try to reach out to all lenders independently to renegotiate the terms, one of the people said.

Byju’s has to make an interest payment on the loan by June 5, the people said. The company will get “a large capital infusion” soon that will allow it to pay down the loan, its lawyer said in a US court last month while denying allegations of hiding the funds raised as loan.

The transfer of borrowed funds was in “full compliance of loan agreement and did not contravene any terms of the agreed-upon rights and responsibilities,” a Byju’s spokesperson said on Thursday. “Even lenders have not alleged that the transfer was not permitted under parties’ existing contractual arrangement,” the person said.

Spokespersons for Byju’s and Houlihan Lokey Inc., hired by creditors to advise them on loan restructuring, declined to comment on queries about the talks being called off.

The company had offered to increase the coupon on loan due 2026 by as much as 300 basis points and prepay part of the debt to renegotiate the agreement after it missed a deadline to file audited financial results.

The loan, one of the largest unrated debt raised by a startup ever, slumped to a record 64.5 cents a dollar in September and is now quoted at around 79 cents, according to data compiled by Bloomberg.

(Updates with comments from Byju’s in fifth paragraph.)

Most Read from Bloomberg Businessweek

• Assault Allegations Plague a $1.4 Billion Home Eldercare Startup

• Republicans Hail Big Spending Cuts That Economists Say Will Have Little Impact on the Economy

• Opioid Crisis Spurred by Animal Sedative’s Stealth Emergence

• Harvard MBA Grads Enter a Tepid Job Market Hoping for the Best

• Adidas After Yeezy

©2023 Bloomberg L.P.