Ayush BansalThe affordable lodgings unicorn OYO might go for a lower IPO offering than the earlier submitted price in its draft red herring prospectus (DRHP), or go as far as postponing the debut altogether.
The IPO issue size is expected to be much lower than $1 billion, these people said. While in its draft IPO papers with the markets regulator Oyo had sought to raise $1.2 billion.
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Oyo, backed by investors including SoftBank Group Corp and Sequoia, made preliminary filings in September aiming for an IPO in early 2022. Nearly six months later, the initial documents, known as a draft red herring prospectus, have yet to get a green light from India’s stock market regulator.
None of Oyo’s IPO-related deliberations have proceeded far enough to come up for formal discussions or approval at the board level, the people said. Oyo representatives didn’t immediately respond to a request for comment.
Oyo’s hesitance is emblematic of a cooling in India’s unicorn-minting technology industry. Nearly 50 startups got venture funding at valuations of $1 billion or more in 2021 alone. This year, there have been signs of slower fundraising and contracting valuations, as investors harbor second thoughts.
Oyo may need to refile DRHP if it reduces the primary offer, or fresh issuance of shares, by more than 20% and the offer for sale (OFS). The existing investors sell their shares to new investors – by more than 50%.
“At the current market conditions, it’s tough for companies like Oyo to raise funds at the valuations decided earlier,” a banker said on condition of anonymity. “ They are willing to reduce the issue size, but other decisions like changes to DRHP, launch date. It will be decided once Sebi gives its observation,” he said.
A company spokesperson, however, said no such decision (refiling of DRHP) can be made. “ Since we are currently in the process of receiving final observations and necessary corporate approvals”.
We request you to refrain from creating any speculation about changes in our IPO plans,” the person said in a statement. “We are awaiting regulatory approvals and are keeping a close eye on market developments.”
According to people briefed on the matter, the cut in IPO issue size will reflect in both primary and secondary share sales.
Company Brief
Founded in 2013 by Ritesh Agarwal, OYO last raised $5 Mn from US tech giant Microsoft at a valuation of $9 Bn. Earlier in July 2021, the startup closed $660 Mn in loan funding from global institutional investors.
The hospitality unicorn is backed by marquee investors such as Masayoshi Son’s SoftBank, NASDAQ-listed Airbnb, Lightspeed Venture Partners, Innoven Capital, among others. The startup to date has raised $4.1 Bn from 26 investors across 19 rounds.
As per the DRHP, OYO’s total income fell by nearly 70% in FY21 to INR 4,157.38 Cr. Its total revenue stood at INR 13,413.26 Cr in the previous FY20. The fall in revenue was largely due to pandemic-induced multiple lockdowns in India and all other markets.
However, if OYO decides to not go forward with the IPO, that has far-reaching implications for India’s startup ecosystem.