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A cut in IPO size to almost half may be significant, but the confidential pre-filing route provides Oyo the flexibility to change primary issue size to almost $900 million. A lot of that will depend on market conditions.
Oyo disclosed on Friday that it is reducing the size of its proposed initial public offering to between $400-$600 million, a steep reduction from its plan to value the offering at $1.1 billion, a source close to the company told Skift. Oyo pre-filed its draft red herring prospectus on Friday with the Indian stock market.
Oyo has pre-filed the draft papers under the recently-introduced confidential pre-filing route, and is likely to launch the initial public offering around the Indian festival of Diwali (around November 12) once the Securities and Exchange Board (SEBI) of India approval comes in.
The pre-filing route will give Oyo some flexibility in terms of timing and sizing of the initial public offering (IPO), the source said.
The reported issue size of $400 to $600 million will now be a primary issuance (new shares being issued by the company for the public), to repay most of its debt, the source added. “For now, an issue timing of around Diwali is likely once SEBI approves.”
This could help improve the company’s financial position and credibility in the market.
Oyo declined to comment on the matter.
The confidential pre-filing route option was allowed by the Indian regulator in November 2022 as part of bringing in progressive and globally popular practices.
The confidential pre-filing option has been available in global economies such as US, UK and Canada. Companies like Airbnb, Lyft and Spotify have opted for the confidential pre-filing route.
Tata Play (formerly Tata Sky) was the first company in India to pre-file confidential draft papers in November 2022.
Under this route, the filing is available at the initial stage, only to the regulator. The new option provides companies more flexibility on issue size during the initial stage.
Unlike the traditional route where companies have to launch the IPO within 12 months from the SEBI approval, or final observation; in the pre-filing route, an IPO can be floated within 18 months from the date of SEBI’s final comments.
This route also provides flexibility to change primary issue size by 50 percent till the updated draft red herring prospectus stage, which in Oyo’s case as per its new filing could go up to $900 million.
In December, SEBI had advised Oravel Stays, the parent company of Oyo, to refile the draft prospectus, updating all the relevant sections such as risk factors, key performing indicators, outstanding litigations and basis for offer.
Oyo’s last submission to the Indian regulator, in November last year, was of its updated financial results for the first half of financial year 2022-23.
During the update, Oyo had reported that its adjusted earnings before interest, taxes, depreciation, and amortization for the second quarter grew eight times from $860,000 in the first quarter to $7 million primarily driven by a 23 percent quarter-on-quarter rise in gross booking value per hotel.
The company expects to clock adjusted earnings before interest, taxes, depreciation, and amortization of nearly $98 million in the upcoming financial year, said founder and CEO Ritesh Agarwal in an employee townhall on Monday.
“We are taking measures to keep a healthy cash runaway and continuing to operate in a cost-effective way. We have a current cash balance of approximately $330 million and we hope we will end up consuming very little of it for existing operations. Our cash flow has shown improvement and our reliance on external funds has gradually decreased overtime,” Agarwal said.
He attributed the increased performance to sustained growth in India, Indonesia, U.S. and UK and relevant optimization in its European vacation homes business.
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