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Oyo, the SoftBank-backed hotel platform, has filed for an initial public offering through which it hopes to raise $1.1bn, the latest in a flurry of lossmaking Indian start-ups trying to tap the country’s red-hot equity markets.

The company, which is almost 47 per cent-owned by SoftBank, was one of the Japanese group’s biggest bets in India’s tech market, burning investor cash as it expanded rapidly in a quest to become the world’s largest hotel chain.

But mounting losses, underperforming businesses and a backlash from hoteliers forced it into a painful retrenchment – even before the pandemic – drawing unfavourable comparisons with fellow SoftBank portfolio company WeWork, whose attempts to list in 2019 failed.

Oyo, founded in 2013 by then 19-year-old Ritesh Agarwal, wants to convince public-market investors that it has turned round its business.

It plans to join a number of other lossmaking start-ups in making the most of an 18-month bull run that has pushed India equities to record highs. The stock market debut of Zomato, the first to go public in July, was well received by investors and its shares remain almost double their issue price.

“The entire space is extremely hot right now . . . It’s early days for these listed start-ups because of the success of Zomato,” said Shravan Shroff, a venture capitalist and a former investor in Oyo.

“Everybody wants to jump on the bandwagon. But I’d err on the side of caution . . . When you have free money, everything runs and everybody wins. But when the going gets tough, that’s when you know who is a horse and who is a donkey.”

Oyo will raise Rs70bn ($944m) through fresh shares, according to its draft red herring prospectus released on Friday. It will sell another Rs14.3bn in existing shares, the majority of which will come from SoftBank.

Other longtime investors such as Sequoia and Lightspeed, which sold portions of their stakes in 2019, will hold on to their shares. Agarwal owns roughly a third of the company’s equity.

Oyo lost Rs39bn in the financial year ended in March, according to the prospectus, down from Rs128bn a year earlier.

Its core business involves signing independent budget hotels up to its platform in order to compete with established chains. At its peak, Oyo said it had 1.2m rooms in 80 countries, as well as diversifying into areas from wedding planning to cafés.

But it began retrenching in late 2019, slashing its workforce and pulling back from international markets including the US, UK and China in order to control mounting losses. SoftBank previously slashed its valuation of Oyo from $10bn to $3bn.

This year Agarwal told the Financial Times that “growth will be moderate in comparison to what it was earlier” as Oyo prioritises a handful of markets such as India and its short-term rentals business in Europe.

Sweta Patodia, an analyst at Moody’s Investors Service, said in a statement that Oyo’s proposed IPO would “provide the company [with] a longer runway to withstand weak operational performance, should pandemic-related disruptions persist for longer than expected”.

A listing, she added, would “also reduce governance-related risks around corporate transparency and limited public disclosures”.



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