OYO files for Rs 8,340 cr IPO; SoftBank to dilute its stake

India’s largest hospitality chain, OYO has filed its draft red herring prospectus (DRHP) for its initial public offering (IPO) of Rs 8,430 crore ($1.2 billion) with the Securities and Exchange Board of India (SEBI). According to the company’s filings accessed by the Business Today, the IPO consists of a fresh issue of Rs 7,000 crore (80% of the issue size) and Offer for Sale (OFS) aggregating to Rs 1,430 crore (17% of the issue size).   Despite the onslaught of COVID-19 on the hospitality sector, OYO’s adjusted gross margins improved from 10% in FY20 to 33% in FY21. Sources said that OYO’s biggest investor, Japanese tech investment major, SoftBank is likely to dilute its 46% stake along with investors including A1 Holdings Inc (Grab), China Lodging, and Global IVY Ventures LL, whereas OYO CEO Ritesh Agarwal, Lightspeed Venture Partners, Sequoia Capital, Star Virtue Investment Limited (Didi), Greenoaks Capital, AirBnB, HT Media and Microsoft are not diluting their shareholding. SoftBank will sell shares worth Rs 1,328 crore in OYO.   The global co-ordinators and book running lead managers to the offer are Kotak Mahindra CapitalCompany Limited, JP Morgan India Private Limited and Citigroup Global Markets India Private Limited.The book running lead managers to the offer are ICICI Securities Limited, Nomura Financial Advisoryand Securities (India) Private Limited, JM Financial Limited and Deutsche Equities India Private Limited.   The company and its stakeholders may, in consultation with lead managers, consider a further issue of equity shares for cash consideration aggregating up to $193 million (the “pre-IPO placement”). The pre-IPO placement, if undertaken, will be at a price to be decided by the company and its stakeholders in consultation with the lead managers and the pre-IPO placement will be undertaken prior to filing of the red herring prospectus with the Registrar of Companies, top sources told Business Today.   OYO plans to use the net proceeds from the fresh issue prepayment or repayment, in part, of certain borrowings availed by certain subsidiaries, funding organic and inorganic growth initiatives; and (iii) general corporate purposes.  Eyeing Global Expansion OYO‘s core growth markets comprise India, Indonesia, Malaysia and Europe representing an addressable market of 54 million short-stay storefronts. Around 88% global hotel storefronts are in the unorganised sector, thus creating significant opportunities for OYO. The scale of OYO’s business drives a self-reinforcing flywheel underpinned by strong local network effects and operating leverage. The virtuous cycle created by this flywheel effect enhances OYO’s platform stickiness and unit economics for both OYO and its patrons with an ever-increasing scale, the company said in its DRHP.