SoftBank-backed hospitality firm Oyo’s move to pay $195 million debt much earlier than required via a buyback procedure will bolster its financial stability, ratings firm Fitch said.
This week, Oravel Stays Ltd, which does business as Oyo, proposed to buy back 30% of its high-cost $645 million (about ₹5,350 crore) outstanding term loan B (TLB). Oyo’s plan involves utilizing available funds, including existing cash reserves and expected revenue, to reduce the outstanding loan amount to $450 million, or about ₹3,730 crore. The repayment of this debt is scheduled for June 2026.
To do this, Oyo is negotiating with its lenders to modify certain conditions such as scrapping the clause to maintain $100 million in cash as collateral.
“Under the existing term loan facility, Oyo is required to maintain $100 million in cash if Ebitda is below $50 million, and $50 million if Ebitda improves to above $50 million,” Fitch Ratings said. Earnings before interest, taxes, depreciation and amortization is a measure of profitability
“We expect the buyback will reduce debt by 30% and the company will realize annual savings in interest costs of around $26 million at current rates. We believe that the potential transaction, along with sustained Ebitda growth could improve Oyo’s Ebitda leverage to below 5 times, the threshold below which we may take positive rating action,” the ratings firm said.
The company also plans to incorporate a $25 million flexible credit line into its available cash reserves.
Oyo’s early debt repayment plan comes on the back of Ritesh Agarwal-led startup reporting its first ever profit in the July-to-September quarter, with a profit after tax of ₹16 crore.
If Oyo’s planned transaction goes through, its cash will decrease to about $80-90 million from around $280 million, before recovering to about $120 million by March next year. Fitch expects Oyo to generate $20-40 million in the second half of the current fiscal year, a level of liquidity deemed adequate for the company’s operational needs, given its size and profitability.
A cash position of this magnitude should provide ample cushion to meet the needs of the company at its current scale and profit margins, Fitch said.
In May, Fitch had upgraded its outlook for Oyo from “stable” to “positive” expecting the rebound in travel and tourism demand to lift the hospitality firm’s profitability even as it reduces its operational costs.
In another development, the credit ratings agency has affirmed Delhi International Airport Ltd’s (DIAL) long-term issuer default rating and senior secured notes at “BB-”, with a positive outlook upgrade from stable. The positive outlook is based on expectations of DIAL’s debt reduction and growth in passenger traffic in the next 18-24 months.
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