Oyo In Talks With Early Investors To Buy Back $1.5 Bn Shares

Oyo Hotels & Home’s founder Ritesh Agarwal is in talks with Sequois Capital and Lightspeed Venture Partners to buy back the shares in order to bulk up his ownership, said people known to the matter.

The move, unprecedented among leading privately held, new-age Indian startups, will help Agarwal raise his stake to around 30% from the current 10%. This may go up to as much 32-33%, including the stakes held by the management and employees.

To finance the buyback, the 26-year-old founder has been in talks with financial institutions and banks in India, Japan and Europe to shore up $2 billion in secured debt, sources close to the matter said on condition of anonymity.

Agarwal to pledge his shares

Oyo is expected to be valued at around $10 billion in what will be a mix of secondary and primary transactions, they said.

In an emailed response to ET’s queries, an Oyo spokesperson said, “As a company policy, we do not comment on industry speculation.” Lightspeed and Sequoia didn’t respond to queries.

Agarwal is going to pledge his shares in the process of raising debt, said another source.

“While Agarwal will buy $1.5 billion worth of shares from Sequoia and Lightspeed, another $500 million will come in the form of primary capital. The primary part of the deal may see existing investors also pitch in,” said a person privy to the details. The $500 million in primary capital will go into the company’s coffers, he added.

The Oyo founder, along with the management, will emerge as the second-largest shareholder after SoftBank Vision Fund, which owns almost 48% of the company. As per clauses drawn up by Oyo, the Japanese group cannot increase its ownership beyond 49.9% without receiving approvals from Agarwal, Sequoia, Lightspeed and Greenoaks Capital. SoftBank had bought back some shares from Greenoaks as part of a secondary transaction a few months ago, said sources in the know. This led to Oyo’s founder starting discussions to raise promoter and management control in the company, said another person familiar with the development. Greenoaks’ stake of 5.76% may have been pared to about 3% post SoftBank’s purchase. A spokesperson for Greenoaks said the company does not comment on “rumour or speculation”.

If Agarwal’s repurchase of shares is successful, Sequoia and Lightspeed will partially liquidate their stakes in Oyo and be able to snag bumper returns from their early bet on the company. Lightspeed owns 13.4% of Oyo and has in all invested Rs 158 crore, while Sequoia has ploughed in Rs 165 crore and holds a 10.24% stake, as per Paper.vc, a business signals platform. The two funds also own stakes in Oyo China, which is separate from Oyo Global, which houses the India business. They had invested separately in the China entity last year.

Wresting back control

Agarwal’s bid to regain a substantial stake in the company is the third such attempt by a SoftBank-backed founder in India.

Bhavish Aggarwal, cofounder of ride-hailing platform Ola, was the first to do so, having modified the company’s Articles of Association in 2017. This ensured that any sale among its investors would require board approval, thereby blocking SoftBank’s attempt to partially acquire Tiger Global’s stake in the Bengaluru-based mobility firm.

Online marketplace Snapdeal’s founders Kunal Bahl and Rohit Bansal also undertook a significant recapitalisation. This resulted in a new entity — B2 Professional Services, controlled by founders’ wives — buying out early investors and emerging along with the founder group as the second-largest stakeholder in the company after SoftBank. These moves by startup entrepreneurs come as Sebi has approved the issuance of shares with differential voting rights.

OYO Hotels & Homes Leaves Small Hoteliers, Customers In Stumble

Huge number of OYO partner hotel owners are into disagreement with OYO Hotels & Homes, which claims to be the largest in India with 9,000 properties in its network. The reason being OYO’s alleged disregard to agreed floor prices, deep discounting practices, non-transparent charges, irrelevant levies in addition to high-handedness and one-sided enforcement of the contract when it comes to deliverables by the hotel asset owner(s).

Unhappy with the way the OYO partnership has panned out, Neeraj Chaudhary, owner of LRH Services Apartment located five kilometres from Pune International Airport stopped checking in OYO customers. Speaking to DNA Money, Chaudhary said that it’s been eight months and now he has decided to move out of OYO owing to the hotel company’s unfriendly business policies.

“Customers with OYO bookings are politely informed about our decision to not honour their bookings and are checked in as walk-in guests. Alternatively, we ask them to make a fresh booking at our property using other online travel agency (OTA) portals. Having said that, guests with OYO bookings (at deeply discounted prices) are being offered rates quoted on OYO as a goodwill gesture for now. However, we will soon go back to our original rates and stop all bookings from OYO,” he said.

Going a step further, the owner of four properties in Pune, of which one is listed with OYO, has asked the hotel chain not to take any bookings for his property. Chaudhary has also made it clear that he doesn’t want to continue with OYO anymore. “I am yet to receive any response from the OYO support team,” he said.

The major grudge, according to hoteliers that DNA Money spoke to, is on the pricing and a host of charges that get levied on the hotel asset owner for partnering with OYO.

For instance, an air-conditioned double occupancy room with a floor price of Rs 2,200 gets sold to the customer at a deep discount Rs 1,000. OYO then deducts a convenience charge on this Rs 1,000 followed by a commission that’s upwards of 20%, depending on its agreement with the asset owner. These charges are on a single booking. There are also concerns about the treatment of goods and services tax (GST) by OYO.

At this stage, the hotel owner gets about 60%, or Rs 600 odd of the deep discounted room rate. Then there are additional monthly deductions at the property level, in the form of performance linked bonus (PLB) charges and audit fees. Eventually, the asset owner is left with just a fraction of the total revenue that’s not good enough to cover the hotels’ cost of operations.

The Pune-based hotelier is among a large number of asset owners across the country who are not happy with the policies adopted by the Ritesh Agarwal-promoted OYO. In fact, this decision by partner hotels to deny OYO bookings has come after the hotel chain said it will levy a double penalty if bookings by customers are not honoured. OYO had also said that it will de-prioritise the hotels’ listing on its platform and or remove the hotel altogether in case of repeated check-in denials. DNA Money had first reported this development in its edition on June 11, 2019.

Miffed with OYO’s decision, a number of partner hotels decided to take the protest route to express their displeasure. Activities started gathering momentum early last week. Hotel asset owners from different pockets of the country started coming together to voice their concerns against OYO’s unfriendly business practices.

Refuting any instances of check-in denials as well as exits initiated by partner hotel asset owners in markets like Pune, Gujarat, Gurugram, and UP, a spokesperson from OYO Hotels & Homes, said, “We are not seeing any unusual patterns of check-in denials emerging from our data on UP, Haryana, Gujarat, and Maharashtra.”

The spokesperson added that in isolated situations (of check-in denials), OYO take a series of steps to ensure the customer doesn’t suffer. “Our 24×7 customer support team works round the clock alongside ground teams to quickly ensure that customers with valid bookings are shifted to a premium upgraded property of OYO in the vicinity at no extra cost to the customer,” said the spokesperson.

Protests were held last week by asset owners in Gurugram, who are part of the Guest House Welfare Association (GHWA), against deep discounting coupled with significantly high commission rates, to the tune of 40% to 50%, being charged by OYO on every booking.

Similarly, on June 20, 2019, a nationwide protest was being initiated by Anurag Saxena, president, Hotelier Welfare Association, Bareilly, Uttar Pradesh (UP). The association has been fighting against OYO’s malpractices and high-handedness for over 18 months now. However, just a day before on June 19, 2019, OYO managed to get an injunction/ restraining order from Delhi High Court against the office bearers of the association. As a result, the nationwide protest could not be held.

As far as the injunction order is concerned, the OYO spokesperson said, “In a situation we noticed in a city, where a certain individual along with a vested interest group was preventing OYO hotel owners from abiding by their contractual agreements, the Delhi High Court has issued an injunction that prevents groups from obstructing the activities of OYO hotel owners and disrupting their business. This is a testament to how OYO is committed to ensuring great quality experiences and if and when pressurised by asset owners to give in to their unreasonable demand by threatening to disrupt the service or deny check-ins to customers, we have legal recourse available.”

The right to protest, the OYO spokesperson said, by one individual must not interfere with the right to livelihood of another individual. “OYO is fully committed to one-on-one discussions with all its asset owner partners as well as providing 24×7 support to anyone who faces harassment and intimidation,” the spokesperson said.