Nomura, Mizuho primary financiers of Ritesh Agarwal's $2 Bn debt

It is as reported. Three Japan-based banks - Nomura, Mizuho, and one unidentified bank - are funding Ritesh Agarwal’s $2 billion loan, out of which $1.5 billion will be used for buyback of Sequoia, Greenoaks, and Lightspeed’s shares and $500 million for primary investment purposes.

Nomura and Mizuho are the principal lenders in this deal.

The money will go into the freshly formed Cayman-based RA Hospitality Holdings, devised specifically to facilitate this primary and secondary $2 billion transaction on behalf of Agarwal. It is not clear if there is any other stakeholder in this entity.

As far as the loan is concerned, just as The Ken had reported, the financing has been done with Agarwal’s current 9% stake in OYO as collateral and the repayment is expected in three years,  right around the time when the India-headquartered hospitality chain plans to go IPO.

With this transaction that marks the firm’s valuation at $10 billion, Agarwal’s stake is slated to increase to 30- 40%. At the time of IPO, the expected valuation of the firm is $18 billion, and that would entail Agarwal’s stake being worth at least $4.8 billion, which will then enable him to repay the loan with interest.

Nomura, Mizuho have faith in the firm’s growth and are certain around the repayment as the international expansion is certain to add to the firm’s value. Case in point, both are also investing in OYO’s equity shares directly. Nomura has plans to invest $50 million in OYO by purchasing a part of SoftBank’s stake in the firm and this is the first investment the Bank directly makes in the Indian startup ecosystem.

The financial company is looking to invest $500 million in equities of high growth companies in APAC, and it will do this via capital commitments from its proprietary books.

Nomura’s direct investment in OYO through SoftBank’s shares is important, not only this provides a nominal exit to SoftBank - whose stake in OYO cannot go over 49.9% - and hence an opportunity to buy some shares again, in case the debt repayment faces any glitches; but it is also important because it strengthens the speculation that SoftBank is one of the major guiding forces behind this entire deal.

Nomura and SoftBank have anyway been known to have worked together across history at several points. The financial company co-advised Yahoo-SoftBank deal along with Goldman Sachs. It was also the leading underwriter for 500 billion Yen bond sale by SoftBank in April.

SoftBank’s mobile unit’s IPO last December was also supervised by Nomura. This leaves no doubt around the strong synergies between SoftBank and Nomura, and leaves no doubt around who is orchestrating the OYO-Agarwal deal from behind the curtains. In fact, Nomura is also going to play a “fee-generating role” in OYO’s IPO as per an ET report.

Importantly, the 49.9% clause set after the recent $1 billion fund infusion by SoftBank in OYO to protect the firm’s image as an independent firm in the market and not lead to a potential direct takeover by SoftBank in the firm with another 20% stake acquisition.

This clause can only be changed with the permission of Agarwal, Greenoaks, Lightspeed, and Sequoia. With Agarwal purchasing the partial stakes of all these investors for $1.5 billion and him being magnificently indebted to Nomura, Mizuho (read: SoftBank), there is no real entity stopping Masayoshi Son from controlling the operations and decisions to be taken for the Gurugram headquartered company.