OYO Withdraws IPO Papers, To Refile After Refinancing: Report

To prepare for the refinancing, the company has already filed an application with the Securities and Exchange Board of India (SEBI) to withdraw its draft red herring prospectus (DRHP)

OYO is planning to refile its initial public offering (IPO) as the hospitality chain firm looks into raising more funds via sale of dollar bonds, media agencies reported. The firm, backed by Softbank, is considering refinancing plans to raise nearly $450 million via the sale.

The refinancing is likely to be led by J P Morgan, reported PTI citing sources in the know. The firm will conduct the sale at an estimated interest rate of 9 to 10 per cent per annum. To prepare for the refinancing, the company has already filed an application with the Securities and Exchange Board of India (SEBI) to withdraw its draft red herring prospectus (DRHP), the report noted. 

The firm plans to submit a revised version of the preliminary papers, after it concludes the bond issuance. Notably, earlier in November last year, Oravel Stays Ltd, parent company of OYO, prepaid a major portion of debt worth Rs 1,620 crore via a buyback process. The buyback included repurchasing 30 per cent of its due Term Loan B worth $600 million. This development resulted in lowering the company’s outstanding loan amount to nearly $450 million.

The report quoted a source and noted, “The refinancing will result in material changes to OYO's financial statements. Hence as per existing regulations, it will need to revise its filings with the regulator. Since the decision for refinancing is at an advanced stage, it doesn't make sense to continue pursuing IPO approval with the current financials. So it's prudent to withdraw the current application.”

The bond issuance will also impact the current effective interest rate of 14 per cent on the existing $450 million Term Loan B and lower it, the report stated. “The refinancing is expected to result in annual interest savings of $8-10 million (Rs 66.4-83 crore) in the first year, after accounting for the costs associated with the bond issuance. The company anticipates annual savings of $15-17 million (Rs 124.5 -141.1 crore) thereafter, almost all of which would get added to its net profits. Post the debt refinancing, the company is open to contemplating an equity round, to reaffirm investor confidence before a public listing to fortify its financial strength,” the source added.