Oyo founder in talks to buy back $1.5 billion shares
- Oyo is expected to be valued at around $10 billion in what will be a mix of secondary and primary transactions.
- Ritesh Agarwal is going to pledge his shares in the process of raising debt.
- Agarwal, along with the management, will emerge as the second-largest shareholder after SoftBank Vision Fund.
- SoftBank cannot increase its ownership beyond 49.9%.
- It would need approvals from Agarwal, Sequoia, Lightspeed and Greenoaks Capital
The move, unprecedented among leading privately held, new-age Indian startups, will help Agarwal raise his stake to around 30% from the current 10%. This may go up to as much 32-33%, including the stakes held by the management and employees.
To finance the buyback, the 26-year-old founder has been in talks with financial institutions and banks in India, Japan and Europe to shore up $2 billion in secured debt, sources close to the matter said on condition of anonymity.
Agarwal to pledge his shares
Oyo is expected to be valued at around $10 billion in what will be a mix of secondary and primary transactions, they said.
In an emailed response to ET’s queries, an Oyo spokesperson said, “As a company policy, we do not comment on industry speculation.” Lightspeed and Sequoia didn’t respond to queries.
Agarwal is going to pledge his shares in the process of raising debt, said another source.
“While Agarwal will buy $1.5 billion worth of shares from Sequoia and Lightspeed, another $500 million will come in the form of primary capital. The primary part of the deal may see existing investors also pitch in,” said a person privy to the details. The $500 million in primary capital will go into the company’s coffers, he added.
The Oyo founder, along with the management, will emerge as the second-largest shareholder after SoftBank Vision Fund, which owns almost 48% of the company. As per clauses drawn up by Oyo, the Japanese group cannot increase its ownership beyond 49.9% without receiving approvals from Agarwal, Sequoia, Lightspeed and Greenoaks Capital. SoftBank had bought back some shares from Greenoaks as part of a secondary transaction a few months ago, said sources in the know. This led to Oyo’s founder starting discussions to raise promoter and management control in the company, said another person familiar with the development. Greenoaks’ stake of 5.76% may have been pared to about 3% post SoftBank’s purchase. A spokesperson for Greenoaks said the company does not comment on “rumour or speculation”.
If Agarwal’s repurchase of shares is successful, Sequoia and Lightspeed will partially liquidate their stakes in Oyo and be able to snag bumper returns from their early bet on the company. Lightspeed owns 13.4% of Oyo and has in all invested Rs 158 crore, while Sequoia has ploughed in Rs 165 crore and holds a 10.24% stake, as per Paper.vc, a business signals platform. The two funds also own stakes in Oyo China, which is separate from Oyo Global, which houses the India business. They had invested separately in the China entity last year.
Wresting back control
Agarwal’s bid to regain a substantial stake in the company is the third such attempt by a SoftBank-backed founder in India.
Bhavish Aggarwal, cofounder of ride-hailing platform Ola, was the first to do so, having modified the company’s Articles of Association in 2017. This ensured that any sale among its investors would require board approval, thereby blocking SoftBank’s attempt to partially acquire Tiger Global’s stake in the Bengaluru-based mobility firm.
Online marketplace Snapdeal’s founders Kunal Bahl and Rohit Bansal also undertook a significant recapitalisation. This resulted in a new entity — B2 Professional Services, controlled by founders’ wives — buying out early investors and emerging along with the founder group as the second-largest stakeholder in the company after SoftBank. These moves by startup entrepreneurs come as Sebi has approved the issuance of shares with differential voting rights.