SoftBank's shareholding in the firm stands at about 45.69%. However, it may have further risen to 48% as reportedly, SoftBank purchased some shares from Greenoaks under a secondary transaction.
In what appears to be a move by Oyo Hotels & Homes founder Ritesh Agarwal to increase his stake in parent company Oravel Stays, Oyo and a Cayman islands-based company RA Hospitality Holdings have filed a notification with the Competition Commission of India (CCI) seeking approval of the proposed combination of the entities, according to documents sourced from business signals platform paper.vc.
The CCI filing says the proposed combination relates to the acquisition of equity securities in Oravel Stays on a fully diluted basis by RA Co. The proposed combination involves subscription to equity securities of Oyo by RA Co and the acquisition of part of the equity securities held by certain existing shareholders of Oyo. The proposed combination is in the nature of an acquisition and falls under 5(a)(i)(A) of the Competition Act, 2002.
Analysts at paper.vc said RA Hospitality Holdings is most likely a joint venture company backed by SoftBank and one or more financial institutions with Ritesh Agarwal as a key shareholder. The entity is likely to purchase some or all of the shares held by Sequoia Capital, Lightspeed Venture Partners and possibly Greenoaks Capital. In addition to that, the company will bring in fresh investment in Oyo. RA most likely stands for Ritesh Agarwal, the analysts added. Oyo didn’t respond to FE’s queries till the time of going to press.
The need to increase Ritesh Agarwal’s shareholding in Oyo from the current 9.43% stems from the fact that Article 21.6 of Oyo’s articles of association prohibit SoftBank from directly or indirectly acquiring more than 49.99% of the fully diluted share capital of the company, without the consent of Ritesh Agarwal, Greenoaks Capital, Lightspeed and Sequoia Capital. SoftBank’s shareholding in the firm stands at about 45.69%. However, it may have further risen to 48% as reportedly, SoftBank purchased some shares from Greenoaks under a secondary transaction.
Also, Oyo, which is reportedly preparing for an overseas listing in a couple of years, requires SoftBank’s fund flow to meet its capital requirements till then. Hence, the share buyback by Ritesh Agarwal will pave way for further investment by SoftBank, analysts said. Sequoia Capital and Lightspeed which have a number of key rights under the articles (so long as they retain a certain percentage holding in the company) have not made any follow on investments in Oyo since 2017 which indicates that they would favour a partial exit, paper.vc said in a separate note.
“Given SoftBank’s bullishness on Oyo and its willingness to continue to invest, it is likely that SoftBank will push for a complete exit by the other key investors giving it majority status in one of the fastest growing companies in its portfolio,” according to paper.vc. “In order for SoftBank to back Oyo, it requires clear visibility towards an IPO. And it clearly wants to be the major beneficiary of an IPO,” founder Vivek Durai told FE.
The restrictions on SoftBank were included following a negotiated shareholder agreement arrived at during SoftBank’s series D investment in Oyo.
In the CCI filing, Oyo and RA Co said “RA Co does not have any investments or operations in India which overlap with those of Oyo. The proposed combination does not affect or change the level of competition in any market in India.”