SoftBank Partners With Oyo in Latin The us in Move for More Oversight

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SoftBank Group is taking an immediate role in managing its virus-hit hospitality startup Oyo’s operations in Latin The us through a joint venture which will regulate all hotels in the region, the head of Oyo Brazil told Reuters in an interview on Friday. SoftBank, the biggest investor in Oyo, will use a part of its $5 billion (more or less Rs. 36,623 crores) Latin The us fund to invest in the newly formed company called Oyo Latam that will take over 1,000 hotels chiefly in Brazil and Mexico, Henrique Weaver said.

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 $10 billion (more or less Rs. 73,246 crores) in its most recent fundraising round, has been forced to chop 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 shows the Japanese investor’s keenness to verify the Indian company remains on target, and is the newest signal SoftBank is more closely overseeing Oyo’s operations in markets including China, India, and Japan, three sources familiar with the matter told Reuters.

SoftBank has taken a big writedowns on bets including shared office space company WeWork and wants to keep away from a similar destiny with Oyo, in which it has invested over $1 billion, said one of the most sources who is directly familiar with SoftBank’s thinking.

SoftBank declined to remark.

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

“Any description that Oyo is being managed, or there is any ‘extra oversight’ (formal or casual) or differently is merely media hypothesis and totally unfaithful,” the spokeswoman said.

SoftBank said it started the partnership with Oyo in Latin The us in 2019 and the investment has been recently formalised with the creation of Oyo Latam and the board.

SoftBank’s Latam fund has invested $75 million into Oyo’s commerce in the region, said a source with knowledge of the matter.

Pandemic pain

“Latin The us 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, on the other hand, forced the company to lay off 500 employees in Brazil, leaving it with a workforce of 140 people, Weaver said. It has also provided up its office space and slashed operating expenses.

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

Oyo Hotels & Homes on Friday said it is extending furloughs for some Indian employees by six months, as an unabated rise in domestic coronavirus cases curbs shuttle and hits hotel revenues.

It said on Friday Indian employees affected by the furloughs could make a choice a voluntary separation or remain on leave with limited benefits until end-February 2021.

The hospitality sector has been one of the most worst affected by the coronavirus outbreak, with global and domestic shuttle coming to a near-halt and picking up quite slowly.

China conundrum

Oyo had dedicated to invest over $600 million (more or less Rs. 4,394 crores) in China but in recent months the company has seen an exodus of executives and a shrinking footprint while also battling lawsuits filed by hotel partners and vendors over non-payment of dues.

The lawsuits have resulted in some of Oyo’s bank accounts in China being frozen but the company said that may be a standard process and does not intent it is guilty.

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

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

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

“In China, we have hit the reset button and are making certain we have a kernel of ecocnomic commerce before we abruptly expand,” the spokeswoman said.

© Thomson Reuters 2020

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