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MUMBAI: Oyo Hotels & Homes has voluntarily let go of some properties due to quality concerns even as it continues to engage with hotel partners to resolve ongoing issues, the 26-year-old founder and CEO of the Indian startup, Ritesh Agarwal, said.The move comes amid a string of protests by hotel owners across the country against the hospitality chain, with budget hotels saying their business has been hit due to deep discounts, high commissions and changes in their contracts, as ET reported earlier.Agarwal, who was speaking up for the first time on the raging agitation by industry bodies, told ET in an exclusive interview that industry groups which have been at the forefront of the movement were mostly not Oyo asset owners. They are only trying to use the current situation to increase property rates by as much as 25%, the Oyo founder said.The backlash against Oyo comes at a time when its largest investor SoftBank has been caught in the after-effects of a debacle at its most prized portfolio firm WeWork, an office space sharing platform, after it shelved its IPO plan.’No SoftBank role in $2b debt’Agarwal, who recently bought back $1.3 billion worth of shares from early investors in a secondary transaction, said Soft-Bank had no role to play in the multi-layered deal and neither did the Japanese group nor its founder Masayoshi Son offer any guarantees for the $2 billion debt picked up by him personally.“I have always wanted to increase my ownership, and this was a great opportunity. It is an equity increase that demonstrates more confidence in the company and not a debt to the company,” he told ET. “Oyo gets this capital as clean equity. I have not sold any shares and don’t intend to sell anything in the near future.”Since Agarwal’s shareholding increases to 30% from around 10% currently, it puts him at risk of losing ownership if he defaults on repaying the debt to Nomura and Mizuho Bank, as he has pledged his shares. He is, however, unfazed.“I am confident of this business, I believe that this risk comes with a significant reward and hence I made the investment,” he said, elaborating on the unusual structure of the deal. As part of the $2 billion primary and secondary investment round, Agarwal will, through a Cayman Islands-registered entity, RA Hospitality, infuse approximately $700 million in Oyo, with the remaining funds being distributed to Lightspeed Venture Partners and Sequoia Capital.The unprecedented move has raised eyebrows due to the massive debt financing raised by the entrepreneur by pledging his shares. Agarwal did not say how he would service the debt. When asked if he would opt to refinance the loan, he said, “I am focused on building a good business, if I do so, the refinancing will happen.”
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Oyo-WeWork resemblanceOyo has come under increased scrutiny after the WeWork fiasco — of loss-making, cash guzzling and highly valued SoftBank portfolio companies especially ones that are offline, physical businesses with lofty valuations typically ascribed to tech startups. Agarwal, though, denied any resemblance to WeWork, saying Oyo’s business model was very different from the Adam Neumann founded venture. Oyo’s valuation of $10 billion in the latest fundraise, up from $5 billion in its previous round, was justified, he said, and not a way to bump up its valuation to show quarterly profits for SoftBank’s Vision Fund.“My understanding of the increase in valuation is due to the growth and scale of the company. The valuation I came in at is fair but, of course, whether this is the right price, time will tell,” he said, when asked why he had bought shares from existing investors at a higher valuation.Although the much-talked about financing round is officially through, Agarwal has multiple other issues to address.Hundreds of hotels have snapped ties with Oyo, although he downplayed the number of hotels that have exited.“I acknowledge there are real problems that exist with a certain percentage of our assets. Our understanding is that it’s 1-2%. We are working with them to make sure that we resolve these concerns,” he said. Oyo is trying to better the customer experience and has over the last three months voluntarily let go of 0.5% of the chains, while rewarding many more, Agarwal said. “We have recently started a ‘No Objection’ programme, reaching out to all our asset owners saying that if you have a problem, let us settle this amicably, after which you stay with us or leave the chain,” he added. Even as hotel associations oppose Oyo’s business model, other concerns around the company’s strategy, like its aggressive global expansion in countries like China and the United States, have also been raised.Oyo has been on an acquisition spree, even buying the Hooters Casino in Las Vegas for $135 million earlier this year.“In China, we run a leading hotel chain and this year, with our partnerships with Ctrip and Meituan and strong improvement in occupancy, have been quite happy with results. In the US, we formally opened doors to our hotels only in June and are happy to share that we now host guests in over 200-plus Oyo hotels which have delivered over 60% average jump in revenue per available room,” he said.
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