Ritesh Agarwal to buy back OYO shares in a $2B financing round

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RA Hospitality, a Cayman Islands-registered entity floated by OYO Hotels & Homes founder and group chief executive Ritesh Agarwal, has signed a $2 billion primary and secondary management investment round with the SoftBank-backed hospitality chain.

ET was the first to report in its July 9 edition that Agarwal was preparing to undertake a potential $1.5 billion share buyback from early investors Sequoia Capital and Lightspeed Venture Partners to bulk up his ownership in the company that he founded in 2013.

Lightspeed Venture Partners, and Sequoia India are selling their holdings as part of this investment round that has seen participation from global institutional banks and Agarwal’s financial partners, subject to shareholder and regulatory approvals, the company said in a statement.

The move, unprecedented among leading privately held, new-age Indian startups, is expected to help Agarwal raise his stake to around 30% from the current 10%. This may further go up to as much 32-33%, including the stakes held by the management and employees.

Oyo is expected to be valued at around $10 billion in what will be a mix of secondary and primary transactions, people familiar with the matter had told ET at the time.

“As an entrepreneur and on behalf of the company’s management, I am thankful to have been given the opportunity to rededicate ourselves to the company’s mission of building the world’s most loved hospitality brand that is focused on bringing a better lifestyle for the common man,” Agarwal said.

The Oyo founder, along with the management, are expected to 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.

“As the company’s first institutional investor, Lightspeed is fortunate to have been part of OYO’s journey from a fledgling start-up in India to a transformative company in the hospitality industry globally. We remain committed to supporting Ritesh and the OYO team as the company embarks on its next phase of growth globally,” said Bejul Somaia, Partner, Lightspeed India Partners Advisors.

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.

“It’s been five years since Sequoia India first partnered with Ritesh and his team. Today our footprint stands at 1 million rooms across India, China, SE Asia, Europe and now the US. We remain committed to supporting this world-class management team as they continue to create living spaces across the world” said Mohit Bhatnagar, Managing Director, Sequoia Capital India Advisors.

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.

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 at the e-commerce firm. This resulted in a new entity — B2 Professional Services, which is controlled by the founders’ wives — buying out early investors and emerging along with the founder group as the second-largest stakeholder in the company after SoftBank.

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