Why is OYO planning to cut down its IPO size?

OYO is likely to cut its IPO size and also the valuation it is seeking from the IPO markets. It may be recollected that OYO has already filed the DRHP with SEBI and final approval is awaited. Management is keen to see the final observations from SEBI before taking a call on the size of the IPO and valuations. The original IPO size was $1.2 billion comprising of fresh issue component of $950 million and OFS of $250 million.

However, post the listing of Paytm, there has been a rethink on digital IPO stocks as most of them lost 40-50% from the recent peaks. It was not just Paytm but also other digital plays including Nykaa, Policybazaar and Zomato have corrected sharply from their high prices. It is in the light of these changed market conditions that OYO is evaluating the possibility of reducing the size of the IPO and also settling for a lower valuation.

While details are awaited, the reports suggest that the size of the IPO may be cut from $1.20 billion to well below $1 billion. Also, the valuations are likely to be downsized from $9-10 billion to $7 billion. This is sharply lower than the last round of funding from Microsoft which had pegged valuation of OYO at $9.6 billion in 2019. Like most contact-intensive businesses, OYO has been badly hit by the pandemic, forcing a valuation lowering.

If the fresh issue component is reduced by over 20% or if the offer for sale (OFS) portion is cut by over 50% of the original filing, then OYO needs to refile the DRHP. OYO is also open to that idea. Currently, Softbank owns 46% of OYO while Ritesh Agarwal holds 33%. With Softbank, Grab, China Lodging and Global IVY will participate in the OFS, investors like Lightspeed Ventures, Sequoia Capital and Airbnb will not offer shares in the OFS.