India’s Oyo offers generous terms for $600m loan

Oyo is one of the largest start-ups in SoftBank's portfolio. Courtesy Oyo

Oyo Hotels, one of India’s most valuable start-ups, is offering unusually generous terms to investors as it seeks to raise $600 million in debt, following a fresh surge of coronavirus cases in its home country that decimated travel and undercut its recovery plans.

Oravel Stays, as the parent company is officially 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 Bloomberg-compiled data.

Oyo’s loan also features maintenance covenants, which are usually only included for companies that are considered risky by investors.

The company is hosting a lender call on May 21 and JPMorgan Chase is arranging the deal. Commitments for the loan are due by June 2.

Oyo is one of the largest start-ups in SoftBank Group’s portfolio and its headlong global expansion was backed and fostered by the investor’s billionaire founder, Masayoshi Son. While the start-up 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 Mr Son has been a mentor to Oyo founder Ritesh Agarwal, going to unusual lengths to support his ambitions. Mr Son personally guaranteed loans from financial institutions, including Mizuho Financial Group, when Mr Agarwal, 27, borrowed $2bn to buy shares in his own company as the valuation rose.

As recently as March, Mr 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 start-up, 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,” said Sweta Patodia, a Moody’s analyst.

The credit-rating company flagged concerns over Oyo’s short operating track record and history of operating losses, but said a key issue will be the coronavirus outbreak in India.

“Moody’s expects Oyo’s operating performance to start recovering in the second half of 2021 once infections subside,” it said in a first-time ratings report.

“However, if the number of daily infections fail to decline to more manageable levels, the risk of nationwide lockdowns cannot be ruled out, which will delay the company’s recovery.”