In less than a year after the WeWork fiasco, Masayoshi Son, the CEO of Japanese conglomerate SoftBank, is now staring at another troubled startup – the Indian hospitality firm OYO.The firm has been forced to freeze operations around the world and has been furloughing thousands of employees, media reports have said. Travel has come to a halt, leaving hotel rooms empty and losses rising for the nascent company.
The Ritesh Agarwal-backed company, once touted by Son to overtake the biggest hotel chains in the world, is now facing an existential crisis in the wake of the coronavirus pandemic.
In a highly unusual move, Agarwal borrowed $2 billion to buy shares of OYO as the valuation soared, with a personal guarantee to financial institutions from Son.
Amid OYO's dismal operations, Son's $2 billion promise could be in jeopardy as banks may call for more collateral if the hotel chain’s valuation drops any further. This could result in personal losses to both Son and Agarwal.
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“Agarwal could be in trouble soon if he faces a margin call,” Justin Tang, head of Asian Research at United First Partners told Bloomberg, suggesting that the 26-year-old may be forced to sell shares at a massive discount.
In 2017, Son had invested $1.5 billion in OYO as a part of its $100 billion Vision Fund.
Earlier this week, OYO, which is one of the biggest startups in SoftBank’s portfolio, placed thousands of employees on leave and furloughs for up to three months in the US and several other markets after most countries went for travel bans due to the pandemic, cutting its revenue and demand by more than 50 percent.
In a statement, Oyo confirmed the furloughs and added that the Indian market was not impacted.
Son had vowed after WeWork he wouldn’t bail out any more startups, but concerns have weighed on SoftBank’s share price.SoftBank wrote down $4.7 billion and Vision Fund $3.5 billion on their investments in WeWork.