Bangalore: India’s Oyo Hotels is looking to raise $600 million in debt to bolster its finances, according to a person familiar with the matter, after a fresh coronavirus surge decimated travel demand and hurt the company’s recovery effort.
The board of Oyo, or Oravel Stays Pvt as the parent company is officially called, approved a plan for an institutional term loan at meetings over Wednesday and Thursday, the person said, asking not to be named as the deal hasn’t been made public.
Oyo is one of the larger startups in Softbank Group Corp.’s portfolio and its headlong global expansion was backed and fostered by the investor’s billionaire founder, Masayoshi Son. While the startup was most recently valued at $10 billion, its business has been crushed after the rapid spread of the virus hit travel, just as operational missteps soured partnerships with hotel owners.
As recently as March, founder Ritesh Agarwal told employees that Oyo’s India business was growing and that the company was earning the same gross profit dollars in January 2021 as it did a year earlier, before it was first hit by the virus. But the pandemic has since intensified in India, leaving tens of millions infected and erasing hopes for a rebound in tourism and travel.
Oyo’s loan, also called Term Loan B or TLB, is open to institutional investors for two weeks with a June 2 application deadline, the person said. Oyo is hosting a lender call on May 21 and JPMorgan Chase & Co. is arranging the deal, the person said.
The high-profile startup, the first Indian unicorn to seek debt from foreign institutional investors, targets a loan with a five-year tenure. The loan issuer will be Oyo’s Singapore entity, the person said. Its Netherlands and U.K. entities could also act as borrowers. A representative for Oyo declined to comment.
Oyo’s goal is to borrow at a lower interest rate to service its existing higher-interest loans. Competitively priced capital is abundant, with a score of prominent startups from Grab Holdings Inc. to DiDi Chuxing and Airbnb Inc. harnessing institutional loans to buttress balance sheets.
Oyo has raised venture capital from investors including SoftBank, Greenoaks Capital and Lightspeed India. Its latest valuation places it third among India’s most valuable startups, behind education-technology provider Byju’s and digital-payments company Paytm.
To bring down costs, the startup ended operations in several markets and dismissed or furloughed thousands of employees. It still works with more than 100,000 small hotel and home entrepreneurs that own and operate lodgings with Oyo’s technology designed to drive room yields higher.
To improve efficiencies, Oyo streamlined global operations into three groups — India & Southeast Asia, Europe and Oyo International. In December, Agarwal was said to have told employees the startup was making progress toward a rebound and had about $1 billion to fund operations until an IPO. –Bloomberg