OYO Withdraws DRHP, Plans to Refile IPO After Refinancing: Sources

OYO's strategic withdrawal of its current IPO application and plans to refile after refinancing highlight its efforts to optimize financial health and investor confidence.

The refinancing, expected to bring substantial interest savings and an extended repayment timeline, positions OYO for a stronger public offering in the future.

Overview of OYO’s IPO and Refinancing Plans:

• OYO, backed by Softbank, is set to refile its much-anticipated Initial Public Offering (IPO).

• The decision comes as OYO nears finalizing its refinancing plans to raise up to USD 450 million via the sale of dollar bonds.

Role of JP Morgan:

• JP Morgan is expected to be the lead banker for the refinancing through the sale of dollar bonds.

• The estimated interest rate for these bonds is between 9 to 10 percent per annum.

Withdrawal of Current DRHP:

• In preparation for the refinancing, OYO has moved its application with the Securities and Exchange Board of India (SEBI) to withdraw its current Draft Red Herring Prospectus (DRHP).

• The company plans to refile an updated version of the DRHP after the bond issuance.

Debt Prepayment:

• Oravel Stays Ltd, OYO’s parent company, prepaid a significant portion of its debt in November.

• The company repurchased 30 percent of its outstanding Term Loan B (TLB) of USD 660 million, amounting to Rs 1,620 crore.

• This buyback reduced the outstanding loan amount to approximately USD 450 million.

Impact on Financial Statements:

• A source closely involved in OYO’s IPO plans stated that the refinancing will lead to material changes in the company’s financial statements.

• Consequently, OYO will need to revise its filings with SEBI as per existing regulations.

Rationale for Withdrawal:

• Given the advanced stage of the refinancing decision, it is deemed prudent to withdraw the current IPO application.

• Continuing with the current financials does not make sense as they will be significantly altered post-refinancing.

Extended Repayment Timeline:

• The refinancing will extend OYO's repayment timeline to five years, compared to the existing repayment schedule of the remaining TLB due in 2026.

Reduction in Interest Rate:

• The bond issuance will significantly lower the current effective interest rate of 14 percent on OYO’s existing USD 450 million TLB facility.

Interest Savings:

• The refinancing is expected to result in annual interest savings of USD 8-10 million (Rs 66.4-83 crore) in the first year.

• Annual savings are anticipated to be USD 15-17 million (Rs 124.5-141.1 crore) thereafter, contributing almost entirely to net profits.

Equity Round Post-Refinancing:

• After debt refinancing, OYO is open to considering an equity round.

• This move aims to reaffirm investor confidence and fortify the company's financial strength before a public listing.

Initial IPO Plans:

• OYO initially filed preliminary documents with SEBI in September 2021 for a Rs 8,430 crore IPO.

• The launch of the IPO was delayed due to volatile market conditions.

• The company had to consider a lower valuation of USD 4-6 billion instead of the initial target of USD 11 billion.

Conclusion:

• OYO’s strategic move to refinance and refile its IPO aims to optimize its financial health and improve investor confidence.

• The refinancing is expected to extend repayment timelines, reduce interest rates, and result in substantial annual savings.

• These steps are crucial for OYO as it prepares for a robust public listing in a more stable market environment.