India’s Oyo Hotels & Homes is ready to welcome new guests. The budget-lodging aggregator is seeking to borrow $600 million using a syndicated offshore loan to refinance all its existing debt. For the SoftBank Vision Fund-backed firm, whose breakneck growth was starting to feel as overhyped as WeWork’s, the deal signals that a restructuring is working.
Founder Ritesh Agarwal abandoned a singular drive to be the world’s biggest room provider just before the pandemic struck. Instead, Oyo has adopted a revenue-sharing model and stopped guaranteeing minimum payments to hoteliers, an initiative that ballooned fixed costs and undercut incentives to maintain service standards. China is also now taking a backseat to European holiday homes.
Any improvements are hard to assess, however. Rather than tout 1.2 million rooms once available, Oyo points to its 100,000 partners. An annual report card, which disclosed net losses, hasn’t been updated for 15 months. The company says it generated the same January “gross profit dollars” it did a year earlier and that India was breakeven on an EBITDA basis in December, but without more detail such tailored earnings claims are of limited use.
There is some external validation. The amount of cash Oyo burns is expected to shrink over the next 18 months and it should have enough to last two to three years, according to credit rating analyst Moody’s. Borrowing at an expected 850 basis points over Libor is far more than what Singapore’s Grab paid for a $2 billion senior-secured term loan facility in February, but it will reduce costs from Oyo’s existing bilateral loans.
Grab later struck a deal with a special-purpose acquisition company, Altimeter Growth. Oyo could take a similar path. Its transaction will test sentiment and court big investors ahead of some form of public market debut. Using debt instead of equity also means that Oyo can avoid extra scrutiny on how far its peak $10 billion valuation has fallen. SoftBank pegs it at $3 billion, according to the Financial Times, while a recent tiny investment from an Indian media group put it at $9 billion. That matter can only be classified as an incidental charge for so long.