Oyo Hotels seeks USD 600 million loan

The hospitality unicorn is looking to get a five-year tenure loan from Foreign Institutional Investors, which will help shore up its faltering balance sheet.
Oyo hotels
The lower interest rate loan will help OYO service its existing higher-interest loans.

The second wave of the pandemic has severely impacted the finances of accommodation aggregator Oyo Hotels. As per media reports, Oravel Stays, the parent company of the Indian unicorn, recently convened a meeting with foreign institutional investors to raise USD 600 million in debt with a five year tenure.

The proposed loan, the first of its kind for an Indian start-up, offers particularly attractive terms for lenders. Rated B3, its interest rate is pegged at 8.5% above the benchmark London Interbank Offered Rate (LIBOR). Moreover, the loan also includes ‘maintenance covenants’ – finance jargon for restrictive conditions – to cover the high risk. If these discussions fructify, Oyo is expected to start receiving the fund infusion from early June.

The lower interest rate loan will help OYO service its existing higher-interest loans. In doing so, Oyo is only following the path set by other global hospitality unicorns such as Grab Holdings Inc. and Airbnb Inc., who harnessed institutional loans to shore up their balance sheets.

The situation was not meant to be so dire for Oyo Hotels, despite its many difficulties. Backed by SoftBank’s maverick founder investor Masayoshi Son, the young company was recently valued at USD 10 billion. And as late as March 2021, Oyo founder Ritesh Agarwal stated that the company’s gross profits in January 2021 were pretty similar to those in January 2020. Son also offered personal guarantees for Agarwal’s heavy borrowings from Japanese financial institutions.

In June 2019, Oyo was the had declared that it is the world’s third largest hotel chain by room count, having surpassed several traditional and well-established hospitality brands. Starting with just one hotel in 2013 in Gurgaon, their network included 23,000 hotels, 850,000 rooms, and 46,000 vacation homes in 800 cities worldwide. 

But the sudden onset of COVID-19 has rapidly marred Oyo’s rosy outlook. Already dealing with friction from hotel owners due to operational disputes, Oyo has seen domestic travel crash dramatically in the face of lockdowns imposed by many Indian states. The hotel industry, which was forecast to recover in the second half of 2021, may take much longer to do so if a nationwide lockdown is imposed in the face of an intensifying pandemic.

Analysts however caution against undue pessimism. They reckon that Oyo remains India’s pre-eminent provider of budget accommodation – a market which has very sound long-term growth prospects. Oyo is also seen to have enough liquidity to tide over the short-term cash crunch, especially in the face of continued backing from important stakeholders.

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