OYO's Controversial Bonus Share Structure Raises Eyebrows Ahead of IPO
OYO Rooms has proposed a bonus Compulsorily Convertible Preference Shares (CCPS) issuance with two share classes: Class A (1:1 conversion) and Class B (1:1,109 conversion). Financial expert Mohit Garg criticizes the structure, alleging it favors promoters and large investors over retail shareholders. The company defends the move as part of streamlining its capital structure and rewarding existing shareholders. OYO is reportedly planning to file its Draft Red Herring Prospectus in November, targeting a $7-8 billion valuation.
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Hospitality chain OYO Rooms has come under scrutiny for its recent postal ballot containing proposals for a bonus Compulsorily Convertible Preference Shares (CCPS) issuance. Financial expert Mohit Garg has voiced criticism over the structure, which offers two distinct share classes with significantly different benefits.
Controversial Share Classes
The postal ballot, sent on October 27, presents shareholders with two options:
| Share Class | Conversion Ratio | Conditions |
|---|---|---|
| Class A (Default) | 1 CCPS converts to 1 share | For every 6,000 shares held |
| Class B (Opt-in) | 1 CCPS converts to 1,109 shares | If merchant bankers are appointed for IPO |
Criticism and Concerns
Mohit Garg alleges that this structure unfairly benefits promoters and large investors at the expense of retail shareholders. The main points of contention are:
- Retail investors who ignore the ballot automatically receive Class A shares with minimal benefits.
- Promoters and large investors can opt for Class B, potentially receiving significantly more bonus shares.
Adding to the concerns, Deepak Shenoy, CEO of Capitalmind AMC, has warned shareholders to remain vigilant about this development.
IPO Plans and Valuation
Despite the controversy, OYO is reportedly moving forward with its IPO plans:
- Expected to file Draft Red Herring Prospectus in November
- Targeting a valuation of $7-8 billion
Company's Perspective
An unnamed source defended the CCPS issuance, stating it is part of OYO's efforts to:
- Streamline the company's capital structure
- Reward existing shareholders as part of IPO structuring
Investor Takeaway
This development underscores the importance of shareholder vigilance, especially concerning corporate actions preceding an IPO. Investors should carefully review all communications from companies they're invested in and seek professional advice if needed to fully understand the implications of such proposals.
As OYO prepares for its potential public debut, this bonus share structure controversy adds another layer of complexity for potential investors to consider. The impact of this structure on the company's IPO reception and valuation remains to be seen.
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