Oyo Hotels & Homes is planning to substantially reduce the size of its initial public offering (IPO) in view of adverse secondary market conditions and a crash in stock prices of new-age tech startups, multiple people aware of the matter told.

The IPO issue size is expected to be much lower than $1 billion, these people said, while in its draft IPO papers with the markets regulator Oyo had sought to raise $1.2 billion.

The hospitality startup may also explore the option of refiling the draft red herring prospectus (DRHP) with the Securities and Exchanges Board of India (Sebi), if required, they said.

Oyo may need to refile DRHP if it reduces the primary offer, or fresh issuance of shares, by more than 20% and the offer for sale (OFS) – where existing investors sell their shares to new investors – by more than 50%.

“At the current market conditions, it’s tough for companies like Oyo to raise funds at the valuations decided earlier,” a banker said on condition of anonymity. “ They are willing to reduce the issue size, but other decisions like changes to DRHP, launch date, will be decided once Sebi gives its observation,” he said.

A company spokesperson, however, said no such decision (refiling of DRHP) can be made since “ we are currently in the process of receiving final observations and necessary corporate approvals”.

“We request you to refrain from creating any speculation about changes in our IPO plans,” the person said in a statement. “We are awaiting regulatory approvals and are keeping a close eye on market developments.”

According to people briefed on the matter, the cut in IPO issue size will reflect in both primary and secondary share sales.

In its DRHP filed in October last year, Oyo had sought to raise around $950 million through sale of fresh shares with the rest coming from OFS.

The Gurgaon-based startup may also have to readjust valuation expectations, sources said.

Oyo was aiming for a valuation in the range of around $9-12 billion but may settle for around $7 billion, as per current thinking of the SoftBank-promoted startup, they said.

Oyo was last valued at $9.6 billion valuation when it raised strategic investment from Microsoft in September last year.

“They (Oyo) are expected to bring in a significant reduction in the OFS component, especially following the Paytm IPO where retail investors logged losses while existing investors made partial exit,” a person aware of the matter said.

Paytm’s parent One97 Communications’ IPO went public with an issue price of Rs 2,150 but its shares have lost over 50% of value since the disastrous listing in November last year. Paytm had increased its IPO size where its OFS component was increased to Rs 10,000 crore compared to the initial plan of Rs 8,300 crore.

A reduction in the OFS component for Oyo would mean SoftBank, which is listed as a promoter in the firm, would sell a lesser number of shares than planned at the time of filing the DRHP. More than 90% of the OFS component was to be from SoftBank, with Singapore's ride-hailing firm Grab, China Lodging Holdings (HK) and Global IVY Ventures, too, participating in secondary share sale.

Lightspeed Venture Partners, Sequoia Capital and Airbnb are among Oyo’s other investors but they are not selling any further shares. Both Sequoia and Lightspeed offloaded a large chunk of their holding to founder Ritesh Agarwal over two years back, which boosted the 27-year-old’s holding to one-third of the company.

Masayoshi Son-led SoftBank Group is the largest shareholder with over 46% stake in Oyo while Agarwal owns around 33% stake. They will continue to be promoters even after the initial public offering, the DRHP had said.

The latest developments also mean Oyo is unlikely to trade on the bourses this financial year. Among the large startups that have filed their DRHPs, Oyo, Delhivery and PharmEasy were expected to launch their IPOs this financial year.

Changes in Oyo’s IPO plans come at a time when globally and domestically there are corrections in valuation of technology companies in both public and private markets.

Following Paytm IPO debacle, smaller rival Mobikwik had deferred its IPO after securing Sebi nod in October 2021.