The logo of Oyo, India's largest and fastest-growing hotel chain. Picture: REUTERS/ADNAN ABIDI
The logo of Oyo, India's largest and fastest-growing hotel chain. Picture: REUTERS/ADNAN ABIDI

Sao Paulo/New Delhi/Bengaluru — SoftBank Group is taking a direct role in managing its virus-hit hospitality start-up Oyo’s operations in Latin America through a joint venture which will control all hotels in the region, says the head of Oyo Brazil.

SoftBank, the biggest investor in Oyo, would use part of its $5bn Latin America fund to invest in the newly formed company called Oyo Latam which will take over 1,000 hotels mainly in Brazil and Mexico, Henrique Weaver said on Friday.

Weaver said both companies would have equal representation on the board, but did not say how much SoftBank would invest.

The move comes as Oyo, valued at $10bn in its most recent fundraising round, has been forced to cut costs and rein in its expansionist strategy in global markets by reducing its hotel footprint and laying off employees after revenues took a hit from the coronavirus pandemic.

It showed the Japanese investor’s keenness to ensure the Indian company remained on track, and was the latest sign SoftBank was more closely overseeing Oyo’s operations in markets including China, India and Japan, said three informed sources.

SoftBank had taken big writedowns on bets including shared office space company WeWork and wanted to avoid a similar fate with Oyo, in which it  invested more than $1bn, said one of the sources who is directly familiar with SoftBank’s thinking.

SoftBank declined to comment.

An Oyo spokesperson said SoftBank was like any other investor in the company with a seat on the board and that Oyo was “a management-run and a board-governed company”.

“Any description that Oyo is being managed, or there is any ‘additional oversight’ (formal or informal) or otherwise is merely media speculation and completely untrue,” the spokesperson said.

SoftBank said it started the partnership with Oyo in Latin America in 2019, and the investment was formalised recently with the creation of Oyo Latam and the board. SoftBank’s Latam fund had invested $75m into Oyo’s business in the region, said a source with knowledge of the matter.

“Latin America has proved to be a good fit for Oyo, with a super fast growth pace because the hotel market is extremely fragmented in the region,” Weaver said.

The pandemic, however, forced the company to lay off 500 employees in Brazil, leaving it with a workforce of 140 people, Weaver said. It had also given up its office space and slashed operating expenses.

Once among the world’s largest hotel chains by room count, Oyo has furloughed hundreds of employees in the US and Europe and shuttered offices in other global markets. In India and China it began cutting costs and headcount as early as January.

Oyo had committed to invest more than $600m in China, but in recent months the company had an exodus of executives and a shrinking footprint while battling lawsuits filed by hotel partners and vendors over nonpayment of dues.

The lawsuits had resulted in some of Oyo’s bank accounts in China being frozen, but the company said that was a standard process and did not mean it was guilty.

“We are vigorously defending these allegations in court of law including disputes on the dues and claims,” the Oyo spokesperson said.

Oyo is down to 1,200 employees in China, compared with a peak of more than 6,000.

Oyo’s retreat from China may prove costly in future, as investors drove up the company’s valuation to $10bn largely due to the potential and size of its bet on the country.

“In China we have hit the reset button and are making sure we have a kernel of profitable business before we rapidly expand,” the spokesperson said.

Reuters

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