Ahead of IPO, Oyo expands share capital through stock split, bonus issue

The Softbank-backed travel technology firm is expected to file its DRHP with Sebi in the next few months

IPO-bound Oyo has expanded its paid-up share capital base through a two-step process. The first step involves a 1:10 split of all equity and preference shares. As the next step, the equity shareholders have then been allotted 3,999 bonus shares for each share held, and for preference shareholders, the conversion ratio to equity shares has been changed from 1:1 to 1:4,000, recent regulatory filings show.

The expansion in share capital seems to be in the run-up to the company's upcoming initial public offering (IPO) to ensure that the market value per share reaches an affordable and easily tradable price band. The Softbank-backed travel technology firm is expected to file its draft red herring prospectus (DHRP) with the markets regulator Sebi in the next few months.

Typically, prior to formally getting listed on one or more stock exchanges, companies with a small capital base issue bonus shares to existing shareholders to bring down the per-share price.

This ensures that small retail investors and the public at large can participate in the company share capital if a public offer is made to them.  Such expansion of bonus shares has been carried out by Zomato, Mobikwik and Policybazaar. During its pre-IPO stage, Zomato passed a special resolution to issue equity shares worth Rs 247.6 crore as bonus shares to existing shareholders in the 6,699:1 ratio and allotted 44,306,073,250 equity shares to all of its preference shareholders upon conversion of the Compulsory Convertible Preference Shares (CCPS). Mobikwik issued and allotted 15,617,940 equity shares to its 67 equity shareholders, including its co-founders.

In an extraordinary general meeting held on September 10, the shareholders of Oyo’s parent company Oravel Stays Limited (previously Oravel Stays Pvt Ltd) passed a shareholders resolution to consider and approve the sub-division of face value of equity and preference shares of the company.

Following the share subdivision, according to a filing dated September 11, some 1,283,039,160 bonus shares were allotted to equity shareholders of the company in the ratio of 1:3,999 (3,999 new equity shares for every one equity share of the company held on September 10, 2021). The effect of stock split and bonus issuance will also be provided to the Employee Stock Option Pool (ESOP) of the company as per Oyo Global ESOP Plan 2018.

The Board also approved an appropriate adjustment to the conversion ratio of preference shareholders on approval by the shareholders for issuance of bonus equity shares as of Sept 10, 2021 in the ratio of 1:4000 (in the proportion of 4000 new Equity shares for every 1 preference shares of the company held on September 10, 2021). Through this method, the company will be allotting equity shares to all of its preference shareholders upon conversion of the Preference Shares held by them.

The bonus allotment has been made to 15 equity shareholders including founder Ritesh Agarwal, SoftBank, Lightspeed Venture Partners, Microsoft Corporation, Oravel Employee Welfare Trust, Sequoia Capital, Global Ivy Ventures, Do Moonstone Advisors, DIG Investment VIII AB, Vinod Sood, Anuj Tejpal, Misha Kohli, GCP-OYO Ltd, Group SNS Limited and RA Hospitality Holdings (Cayman).  

Based on previous filings by Oyo and information from company sources, some reports spoke about the issuance of 4333 bonus shares as a part of a series of steps being taken for share capital restructuring. Sources revealed that post all these capital restructuring exercises and the fresh capital infusion in the last rounds with Microsoft and HT Media, the direct and indirect shareholding on a fully diluted basis of Ritesh Agarwal and other shareholders in Oyo global wouldn’t have any major change.

Apart from the expansion of share capital through stock split and bonus issuance, as per the Companies Act 2013, only public limited companies can list with any stock exchange. To fulfill this criterion, on Sept 14, Oyo became a public company from Oravel Stays Pvt. Ltd to Oravel Stays Limited, as per a regulatory filing with the Registrar of Companies, Ahmedabad, India.