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May 18, 2024

OYO IPO, refinancing, dollar bonds, SoftBank, JP Morgan, DRHP, market regulator, debt repayment, interest savings, equity round

JP Morgan is expected to lead the refinancing effort, handling the sale of dollar bonds at an estimated annual interest rate of 9 to 10 percent, a source indicated. In light of this development, OYO has submitted an application to the Securities and Exchange Board of India (Sebi) to withdraw its current draft red herring prospectus (DRHP). The company plans to submit an updated DRHP following the bond issuance, reflecting the latest financial adjustments.

Debt Repayment and Financial Restructuring

Oravel Stays Ltd, OYO’s parent company, took a proactive step in November by prepaying a substantial portion of its debt. Through a buyback process, OYO repurchased 30 percent of its outstanding Term Loan B (TLB) of $660 million, amounting to Rs 1,620 crore. This initiative reduced its remaining loan balance to approximately $450 million.

An insider involved in OYO’s IPO plans commented, “The refinancing will lead to significant changes in OYO’s financial statements. According to current regulations, it is necessary to revise our filings with the regulator to reflect these changes.”

Cost Savings and Extended Repayment Timeline

The planned refinancing aims to extend the repayment timeline by five years, surpassing the original 2026 deadline for the remaining TLB. This strategic move is expected to lower the current effective interest rate from 14 percent on the $450 million TLB facility to a more manageable level, resulting in substantial cost savings.

“The refinancing is projected to save OYO $8-10 million (Rs 66.4-83 crore) in annual interest costs in the first year alone, even after accounting for bond issuance expenses. Annual savings are expected to increase to $15-17 million (Rs 124.5-141.1 crore) thereafter, contributing significantly to the company’s net profits,” the source explained.

Future IPO Plans and Market Positioning

OYO’s decision to withdraw and subsequently refile its IPO application is seen as a prudent move to align its financial disclosures with its improved financial structure post-refinancing. “Given the advanced stage of our refinancing decision, it’s logical to update our financials before pursuing IPO approval. This ensures accuracy and regulatory compliance,” the source added.

Looking ahead, OYO is open to considering an equity round following the debt refinancing. This step aims to bolster investor confidence and strengthen the company’s financial standing before moving forward with a public listing.

Market Conditions and IPO Valuation

OYO initially filed preliminary documents with Sebi for an Rs 8,430 crore IPO in September 2021. However, volatile market conditions at the time forced the company to delay the launch. Originally targeting an $11 billion valuation, OYO had to adjust its expectations, preparing for a lower valuation between $4-6 billion.

In summary, OYO’s strategic refinancing and subsequent refiled IPO application signal a calculated effort to optimize financial health and market positioning. By securing more favorable terms for its debt and potentially boosting its equity base, OYO aims to pave the way for a successful public listing in the near future.

Jhumpa Lahiri

Jhumpa Lahiri

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