SoftBank-backed Indian hospitality startup Oyo Hotels is seeking USD 600 million in debt through unusually generous terms to replenish its cash reserves, as the second wave of coronavirus and subsequent lockdowns have once again wiped the demand for its services in the country, according to a report by Bloomberg.
The company is reportedly in talks with investors about a five-year term loan B at 850 basis points over LIBOR (London Inter-bank Offered Rate), which is considered to be higher than the usual guidance given for recently issued term loan Bs in the Asia-Pacific market.
This makes Oyo, which counts Greenoaks Capital, Lightspeed India, Sequoia, Airbnb, Grab, and Didi Chuxing among others as backers, the first Indian unicorn to opt for debt from foreign institutional investors.
While Oyo, one of India’s most valuable startups, had already been on a bumpy ride in the past few years due to operational missteps and headlong expansions, the COVID-19 global public health crisis has added to its woe.
When coronavirus first hit the world’s second-most populous country last March, it forced millions of people to remain indoors, eradicating the demand for travel and hotel companies. The situation was on its way to turn around at the beginning of this year as India seemed to have COVID-19 under its control, before an unexpected second-wave outbreak across the country once again locked millions inside, dimmed hopes of a recovery in the tourism and travel sector, and disrupted Oyo’s recovery plans in its home market, although the company had started 2021 on a higher note after a lull year.
The most recent venture capital funding Oyo has raised is a Series F round that happened in November 2019 and March 2020, bringing in USD 693 million and 807 million, respectively, with participation from RA Hospitality and SVF India Holdings, a unit of SoftBank Vision Fund. And in the first week of this January, it raised a further USD 7.4 million (54 crore rupees) from Hindustan Media Ventures as an extension of the F round.
Late last year, Oyo founder Ritesh Agarwal reportedly told employees that the company had USD 1 billion in reserves till the IPO and that it was making a recovery.
Earlier this March, Agarwal claimed that Oyo’s India business was growing and that the company’s gross profit dollars surpassed 100% of pre-COVID-19 levels since Jan 2021.
“We earned the same money in Jan 2021 as we did in Jan 2020,” he said in a blog post.
“India business has achieved EBITDA (earnings before interest, taxes, depreciation, and amortization) break-even from Dec 2020 and is growing month-on-month,” Agarwal said. “This is the second market, after OYO Europe Homes, that has achieved profitability and two of our largest markets being financially sustainable.”
Agarwal said Oyo has 100,000 hotel partners globally and is “consistently adding 11K+ new rooms per month just in India.” He further added that he expects gross profits to get stronger in 2021 as restrictions and lockdowns ease as well as vaccination coverage increases. But things haven’t turned out the way he thought.
According to a note by Moody’s Investors Service, cited by Bloomberg, Oyo’s operating performance is likely to start recovering in the second half of 2021 once infections subside.
“However, if the number of daily infections fails to decline to more manageable levels, the risk of nationwide lockdowns cannot be ruled out, which will delay the company’s recovery,” it said.