Unpacking Oyo and Ritesh Agarwal’s latest debt adventure

In a first for India’s startup ecosystem, hospitality major Oyo is out raising $600 million in longterm debt. While the company is supposedly testing the waters ahead of a public share listing, the debt-raising allows it to sidestep a perplexing question: what is Oyo’s valuation?

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By 

Madhav Chanchani

May 25, 2021

10 Min Read

Ritesh Agarwal is looking to take another big loan. This time not in his personal capacity, but for Oyo—a business battered by travel restrictions due to Covid-19. 

SoftBank-backed Oyo is looking to raise debt of $600 million at an interest rate of 9-9.5% from overseas investors, including hedge funds, said two sources briefed on the matter. It will use a chunk of this money to partially repay a short-term debt it had raised to buy Europe’s @Leisure Group (renamed Oyo Vacation Homes), one of them said. 

Moody’s last week assigned Oyo a B3 rating, pegging the startup’s bond issue as speculative and subject to high risk. It had assigned Grab a similar rating when the Southeast Asian ride-hailing major raised $2 billion through an instrument called Term Loan B, or TLB, in January. It is no coincidence that Grab, which last month unveiled its share listing plan, is also backed by SoftBank. 

This is what Oyo is looking to repeat, believing the debt-raise could help ultimately pave its path as well to the capital markets. Not immediately, but in the next 1-2 years. 

“Oyo wants to test the waters about what institutional investors think about the company, the questions they are likely to ask, and if there is genuine interest from them,” said one of the two sources mentioned above.  

But the loan will come with riders, which are explained below. 

Oyo’s move is interesting also because loss-making technology unicorns are not known to raise longterm debt. They typically fund their operations with equity. When Oyo’s new debt-raise is completed, the company and Agarwal together would have raised over $3.2 billion of debt. InMobi, the advertising technology unicorn, had raised $100 million in debt in 2015—nowhere close to the amount Oyo is raising.  

But as with any offering for institutional investors, Oyo needs to disclose where its business is headed and if it will be able to pay back the loan. 

On this, rating agencies’ outlooks on Oyo paint an interesting picture. While Moody’s has a stable outlook on Oyo, Fitch Ratings has assigned the company a negative outlook. When contacted, an Oyo spokesperson declined to comment. 

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