Fitch Rated First-Time Negative Outlook For OYO

Fitch Ratings has assigned Oravel Stays (OYO) a first-time expected long-term foreign and local currency issuer default rating of B(EXP). This came from Fitch when the startup was most recently valued at 10 billion dollars.

The outlook is negative, it said. Fitch has also assigned an expected rating of B(EXP) with recovery rating of RR4(EXP) to the proposed senior secured loan facility to be issued by OYO's fully-owned subsidiary Oravel Stays Singapore.

The issuance will be unconditionally and irrevocably guaranteed by OYO and certain other subsidiaries within the group.

The final rating is contingent on successful completion of the senior secured term loan issuance and the proceeds being used to refinance all of the group's existing debt. Liquidity and cash access within the group will improve following the issuance, given existing cash restrictions.

Fitch said OYO's ratings reflect its technology-led platforms which connect partnered hotels and homes to travellers in its core markets of India, Europe and southeast Asia.

OYO has a short operating history of only about seven years and a weak financial profile characterised by EBITDA losses.

Its business model benefits from high stickiness with property owners due to revenue-sharing with them, moderate competitive barriers and minimal capex requirements, said Fitch.

OYO's ratings have low headroom as it is uncertain if EBITDA can turn positive in the financial year ending March 2023 (FY23) and it is likely to have a larger free cash flow (FCF) deficit in FY22 amid a second wave of Covid-19 infections in India.

Liquidity at FYE21 is adequate but a further extension of travel-related restrictionscan lead to larger-than-expected negative FCF and increase liquidity risk.

The management is committed to break even on EBITDA by FY23 and is unlikely to enter non-core areas and markets or make asset-heavy, debt-funded M&As, said Fitch.

Reports say Oyo Hotels, one of India's most valuable startups, is looking to raise 600 million dollars in debt to bolster its finances after a fresh coronavirus surge decimated travel demand and hurt the company's recovery effort.