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    Oyo founder Agarwal investing $700M in $1.5B fresh round

    Synopsis

    Investment to be routed via RA Hospitality and financed by the $2-2.2 billion debt Oyo CEO Ritesh Agarwal had raised

    riteshOYO

    Oyo Hotels & Homes said it’s raising $1.5 billion in fresh financing, with founder Ritesh Agarwal investing $700 million into the SoftBank-backed company.
    Agarwal’s investment will be routed through the Cayman Island-registered RA Hospitality, a special purpose vehicle, and financed by the $2-2.2 billion debt he had raised from a consortium of Japanese financial institutions, including Nomura Holdings and Mizuho.

    This debt financing involves the 26-year-old group CEO pledging his stake in the company that he founded in 2013. Of the debt raised by Agarwal, $1.5 billion will be used to partially buy out the stakes held by two early investors in Oyo — venture capital firms Lightspeed Venture Partners and Sequoia Capital while the rest will be pumped into the company. Agarwal’s stake will rise to about 30% from 10% now.

    Interestingly, this is the first such instance of a new-age startup founder picking up debt to invest primary capital in his company, and also provide partial exit to early investors.

    “Our immediate goal, however, is to make forward-looking investments so that we can achieve our mission, while delivering on our fiduciary responsibility to our investors by building a sustainable business,” Agarwal said in a release.

    The development of Agarwal buying back shares worth $1.5 billion was first reported by ET on July 8. The multi layered transaction has set a new valuation benchmark —$10 billion— for the six-year-old company.

    The company said an additional $800 million in primary capital will come from the Gurgaon-headquartered Oyo’s existing investors, with the lion’s share coming from SoftBank. Others such as Greenoaks Capital and Airbnb will also participate in the larger $1.5 billion Series F financing round, which is expected to close by the end of the month.

    While Oyo disclosed the amount it was raising from its investors, it did not reveal their names. Oyo also counts ride-hailing companies Grab and Didi Chuxing along with Hero Enterprise and China Lodging Group among its list of institutional backers.

    A significant portion of the funding raised by Oyo will go toward growing its business in the US. In June, ET reported that the company had committed to invest $300 million over the next few years in the world’s largest consumer market.

    It has a presence in about 60 US cities across 21 states with 7,500 rooms under management.

    Separately, RA Hospitality received Competition Commission of India approval in September to undertake the stock buyback.

    Oyo, which says it’s the world’s second-largest chain of hotels, homes, and managed living and work spaces, has a portfolio of more than 35,000 hotels and 125,000 vacation homes. It has more than 1.2 million rooms under management, according to company data. It also manages vacation homes in more than 800 cities in 80 countries under brands such as Oyo Homes, Belvilla, Danland and Dancenter along with Germany-based Traum-Ferienwohnungen.

    The development follows the failed initial public offering of SoftBank-backed WeWork that saw Wall Street reject the $47 billion valuation that the New York-based company commanded at the time of the Japanese powerhouse’s last investment in it.

    Oyo’s valuation, too, has more than trebled since SoftBank emerged as its largest stakeholder, having invested an estimated $1.5 billion in the company since 2015.
    ( Originally published on Oct 07, 2019 )
    The Economic Times

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