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Oyo Hotels targets $9-billion valuation in IPO; may get Sebi nod soon

Oyo hotel, oyo rooms

Hotels is eyeing a valuation of about $9 billion (Rs 66,700 crore) in its initial public offering after preliminary conversations with potential investors, according to people familiar with the matter.

The SoftBank Group-backed start-up is expected to get the green light to proceed with the offering this week or next after filing preliminary documents last year, said the people, asking not to be named because the talks aren’t public. A formal roadshow will begin after regulatory approval and determine final pricing.

The valuation is targeting would be lower than the $12 billion (Rs 88,000 crore) initially reported in local media last year and probably lower than the $10 billion level the start-up hit in 2019. The start-up, led by 28-year-old Ritesh Agarwal, has discussed offering a discount of as much as 15 per cent on the $10 billion suggested by bankers during early discussions, the person said.

Executives are watching IPO demand as prepares to build an order book from institutional investors, one of the people said. The decline in tech stocks in the U.S. may also weigh on valuations, a different person said.

Such muted expectations reflect Oyo’s financial struggles and a more measured appetite for in India following the disastrous stock market debut of Paytm. The digital payments provider raised a record $2.4 billion in its November offering, but shares quickly plummeted and now trade at about half the IPO price.

Oyo’s offering will be among the biggest since Paytm’s. In its preliminary filing, the company said it planned to raise Rs 8,430 billion ($1.1 billion) through the sale of new shares and some secondary shares, or those held by existing investors.

SoftBank founder Masayoshi Son became an early and enthusiastic backer, encouraging Agarwal to rapidly expand beyond India into markets like Japan and the US. The Japanese billionaire even personally guaranteed a $2 billion loan to Agarwal so he could buy more shares in Oyo, an extremely unusual move.

The Covid-19 pandemic brought the start-up’s expansion to a sudden halt. Agarwal had to pull back in many markets and laid off thousands of employees. In an interview with Bloomberg TV last year, he said the pandemic hit Oyo like “a cyclone.”

The IPO will consist mainly of primary shares, or those sold by the company, and a smaller portion of secondary stock. SoftBank, which holds about 47 per cent of the equity, aims to sell a small percentage of shares. Agarwal, who holds about a third of the stock, does not plan to part with shares.

Key Takeaways

  • A formal roadshow will begin after regulatory approval and determine final pricing
  • The valuation Oyo is targeting would be lower than the $12 billion initially reported in last year and the $10 billion level the start-up hit in 2019
  • The company has discussed offering a discount of as much as 15 per cent on the $10 billion



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