OYO has never been short of surprises. Known for its aggressive expansion, restructuring rounds, and repeated attempts to go public, the hospitality startup is once again in the spotlight—this time for an unconventional “bonus share” offer that turns shareholder rewards into a wager on its long-delayed IPO.
A Bonus That’s Not Quite a Bonus
On 29 October, OYO sent out a postal ballot proposing the issue of bonus compulsorily convertible preference shares (CCPS)—a rare and complex form of equity incentive. Unlike a typical bonus issue, where shareholders receive additional equity for free, OYO’s offer introduced two sharply different paths:
- Class A (Default Option): Each CCPS converts into one equity share—a predictable, low-risk outcome for those who take no action.
- Class B (Opt-in Option): Each CCPS could convert into a massive 1,109 equity shares, but only if OYO appoints IPO bankers during FY26. If the IPO plan stalls, the conversion drops to 0.1 share, leaving almost no value.
In other words, OYO’s shareholders weren’t just being rewarded—they were being asked to bet on the company’s IPO timeline.
A Tight Window and Rising Concern
OYO’s notice gave investors just three working days to respond—a window so narrow that several shareholders publicly criticized it. The late-night email and a 50-page explanatory document left little time for review, sparking accusations that the process favored insiders who were better informed.
Legal experts were quick to weigh in. “No clear Indian precedent exists for bonus shares contingent on IPO banker appointment,” observed Ankit Jain, Partner at Ved Jain & Associates. Another lawyer, Rohit Jain of Singhania & Co., noted that such an extreme conversion ratio likely reflects an engineered outcome rather than a mere face-value adjustment.
In response to the backlash, OYO extended the response deadline from 1 November to 7 November, and later rolled back the plan entirely, citing feedback from shareholders.
Corporate Governance or Creative Structuring?
At first glance, OYO’s CCPS issue appeared designed to simplify its cap table ahead of a long-awaited listing—streamlining the mix of share classes accumulated over years of private funding. But the mechanism’s linkage to an IPO milestone raised governance questions.
The 1:1,109 conversion ratio created a staggering disparity between outcomes, controlled largely by management’s decision to appoint bankers—a step that does not require external validation. Critics argued this gave insiders too much influence over the reward trigger.
“This transforms the ‘bonus’ into a loyalty test rather than a genuine reward,” said Ankit Jain, highlighting the imbalance between informed insiders and retail shareholders caught off-guard.
Why Tie It to an IPO?
From OYO’s perspective, the move had strategic intent. Linking shareholder rewards to the IPO process:
- Aligns incentives—encouraging long-term investors to stay through the transition to a public company.
- Signals confidence—implying management’s commitment to initiate the listing soon.
Yet, the risk-reward asymmetry underscored OYO’s penchant for financial innovation with a twist of opacity—a hallmark of companies juggling complex private valuations and public market aspirations.
OYO’s IPO Journey: The Road So Far
OYO’s upcoming listing would mark its third IPO attempt, following previous withdrawals amid market volatility. The company is now in renewed discussions with Indian and global banks, targeting a $7–8 billion valuation by the end of FY26.
Financially, OYO reported its first full-year profit in FY25, clocking ₹244.8 crore, aided by one-time gains and tax credits. Revenue rose 16% to ₹6,252.8 crore, while finance costs of ₹959.16 crore continued to pressure margins. Despite the profitability milestone, growth in the India segment remained muted at 4%, revealing a still-fragile operating base.
What’s Next?
The extended deadline offered temporary relief, but the true test lies in whether OYO can advance its IPO plans within this fiscal year. Success could transform the aborted CCPS proposal into a case study in pre-IPO innovation. Failure, however, might deepen investor skepticism around its governance and strategic timing.
As the company walks this tightrope, the episode serves as a vivid reminder: in India’s evolving startup ecosystem, financial creativity can be both a signal of ambition and a source of anxiety.
Takeaways
OYO’s short-lived bonus share experiment highlights the tension between shareholder reward and corporate control. By tying incentives to the company’s own execution milestones, OYO effectively invited investors to share in both its hope and its risk. Whether this bet ultimately pays off will depend not on structure, but on the company’s ability to deliver what has eluded it twice before—a successful, transparent IPO.
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Disclaimer
This article should not be interpreted as investment advice. For any investment decisions, consult a reputable financial advisor. The author and publisher are not responsible for any losses incurred by investors or traders based on the information provided.