Oyo Hotels offers generous terms for $600-million loan
MUMBAI: Oyo Hotels, one of India’s most valuable startups, is offering unusually generous terms to investors as it seeks to raise $600 million in debt, following a fresh surge of Covid cases in India that decimated travel, undercut revival plans.
Oravel Stays Pvt., as the parent company is known, is discussing with banks and investors a five-year term loan B at 850 basis points over Libor, higher than the usual guidance given for recently issued term loan Bs in the Asia-pacific market, according to Bloombergcompiled data. The interest rate is similar to the 875 basis points over the BBSY benchmark paid by Mission Group Bidco Pty. Ltd on a seven-year term loan B signed in June 2020.
Oyo’s loan also features maintenance covenants, which are usually only included for companies that are considered risky by investors. The loan announcement confirms an earlier report by Bloomberg News.
The company is hosting a lender call on May 21 and Jpmorgan Chase & Co. is arranging the deal. Commitments for the loan are due by June 2.
Oyo is one of the largest startups in Softbank Group Corp.’s portfolio and its headlong global expansion was backed and fostered by the investor’s billionaire founder, Masayoshi Son. While the startup was most recently valued at $10 billion, its business has been crushed after the rapid spread of the virus hit travel, following operational missteps that soured partnerships with hotel owners.
Japan’s Son has been a mentor to Oyo founder Ritesh Agarwal, going to unusual lengths to support his ambitions. Son personally guaranteed loans from financial institutions, including Mizuho Financial Group Inc., when Agarwal, now 27, borrowed $2 billion to buy shares in his own company as the valuation rose.
As recently as March, Agarwal told employees that Oyo’s India business was growing and that the company was earning the same gross profit dollars in January 2021 as it did a year earlier, before it was first hit by the virus. But the pandemic has since intensified in India, leaving tens of millions infected and erasing hopes for a rebound in tourism and travel.
The startup, the first Indian unicorn to seek debt from foreign institutional investors, will officially issue the loan through its Singapore entity. Moody’s Investors Service assigned a B3 rating.
“Oyo’s B3 corporate family rating reflects its position as one of the largest providers of budget accommodation in its key operating markets, good long-term growth prospects for the domestic budget travel sector, adequate liquidity to cover its likely cash burn and continued financial support from its key shareholders,” says Sweta Patodia, a Moody’s analyst.