Oyo raises $1.5bn from its investors
BENGALURU: Indian hospitality startup Oyo, backed by Japanese conglomerate SoftBank Group Corp, announced on Monday a $1.5 billion deal with its existing investors that will tighten the founder’s control and provide fresh capital to the moneylosing firm.
“Oyo founder Ritesh Agarwal will put in $700 million into the company as a primary investment,’’ an Oyo spokeswoman said, adding the money was part of the $2 billion debt he raised in July.
“The rest of the money, most of which will be used to expand the company’s businesses in the United States and Europe, will come from other existing investors,’’ Oyo said.
Other than SoftBank, Oyo also counts Lightspeed Ventures and Sequoia Capital among its investors.
Oyo, which operates in over 80 countries, is expanding in the United States and Europe, where it runs vacation rentals. In the United States, Oyo is rebranding the Hooters Casino Hotel in Las Vegas as its own.
Agarwal has said India and China account for two-thirds of the company’s total revenue, while a fifth comes from Europe and the United States.
Meanwhile, as the company pushes for profits, many hotel owners who partnered with it complained of their income being hurt by higher fees Oyo charges them.
In the background of the discontent is the disruption Oyo has brought to India’s lodging market — often to the delight of India’s middle-class travellers and to the dismay of hotel owners who have seen room rates driven down at a time when economic growth has slowed.
Oyo charges hotels a roughly 20% franchise fee on room revenues when hotels join its network, but some Indian hotel operators say the startup often ends up taking half or more of revenues through fees that were not initially disclosed.
A group representing hotel operators in Bengaluru called for a criminal probe into Oyo last month, saying the company was withholding money because of unfair fee increases.
Two hoteliers in the southern state of Karnataka filed separate police complaints last month accusing Oyo of deceitfully increasing commissions, and accusing Agarwal of fraud.
Agarwal successfully appealed to the Karnataka High Court for a stay order on one case in Bengaluru, the court website shows, and a police official said the order barred police from investigating.
“In the other complaint, in the town of Chikkamagaluru, police are investigating,’’ an official there said.
Oyo has denied the allegations and said Agarwal declined comment on the legal complaint.
The company said it operated with a high level of “integrity, transparency and commitment” with its partners.
Agarwal said hotel operators who have raised complaints represent a tiny fraction of Oyo’s network and were seeking to drive prices higher at the expense of consumers.
“On an annual basis, Oyo is able to retain 99% of its asset owners. If, for instance, people were unhappy, our retention rate would have been lower,” he told Reuters.
Oyo says it is in constant contact with its hotel partners. “We have always disclosed any changes applicable to contracts with asset owners.”
Many hotel owners in India were upbeat when Oyo gave properties in smaller cities visibility but began to raise concerns when profits failed to improve, said Darshini Kansara, a hospitality industry analyst at CARE Ratings in Mumbai.
“It isn’t something Oyo can ignore as they look to capture more market share.”
Based in Gurugram, near New Delhi, Oyo signs up hotels as franchisees by rebranding them and upgrading amenities and then charges fees from the owners.
Oyo says hotels are updated on any new contract terms on a tablet-device at the hotel that Oyo provides to manage bookings.
But some hotel owners say the devices are operated by junior staff, leaving them in the dark until fees have been charged.
Ashraf Ali, a hotelier in Mumbai, said a notification offering new terms would keep showing up on the tablets until the hotel employee hit accept.
Bengaluru hotelier Vikrant Singh says his 50-room hotel swung from making monthly profits of nearly $7,000 in late 2016 to a loss of more than $2,000 this January.
He blames Oyo for the reversal. “Our profits went down due to the high commissions Oyo was charging,” said Singh, who withdrew his hotel from Oyo in March.