Mint Explainer | OYO’s IPO-linked bonus shares: Why many investors are unhappy
The hospitality startup’s unconventional bonus-CCPS offer ties shareholder rewards to its long-delayed IPO, raising questions from retail holders and market watchers about fairness, timing and governance.
OYO has announced a new bonus share offer, but it’s not a conventional one. Instead of simply rewarding existing shareholders with extra stock, the company has designed a structure that effectively asks investors to bet on the success and timing of its long-awaited initial public offering (IPO).
The announcement comes as the hospitality firm gears up for a third attempt at going public, restarting talks with Indian and global investment banks to list by the end of this financial year (FY26).
What exactly is OYO offering?
On 29 October, OYO sent a postal ballot to its shareholders announcing the issue of bonus compulsorily convertible preference shares (CCPS)—a special class of shares that later convert into regular equity.
Unlike a typical 1:1 bonus issue, OYO’s proposal grants one CCPS for every 6,000 equity shares held. Investors were offered two choices: a default, low-upside option, or an IPO-linked, high-reward alternative.
The response window was unusually short, just three working days, after which the system automatically defaults to the conservative option if no action is taken.
OYO has said the structure is designed “to reward existing shareholders." Under the Companies Act, 2013, companies can issue bonus shares (equity) by capitalising reserves or securities premium. However, in this case, OYO is issuing preference shares that are compulsorily convertible into equity—a more complex instrument, rather than the typical “bonus shares" route.
The company has said that the structure is designed “to reward existing shareholders." Under the Companies Act, 2013, companies can issue bonus shares (equity) by capitalising reserves or securities premium. However, in this case, OYO is issuing preference shares that are compulsorily convertible into equity—a more complex instrument, rather than the typical “bonus shares" route.
“No clear Indian precedent exists for bonus shares contingent on IPO banker appointment," said Ankit Jain, partner, Ved Jain and Associates, a law firm.
How do the two classes of CCPS differ?
Under Class A (the default), each CCPS is converted into one equity share, offering a straightforward and low-risk outcome for those who take no action.
Class B (the opt-in option), however, is tied directly to OYO’s IPO progress. If the company appoints merchant bankers for its IPO during FY26, each CCPS will convert into 1,109 equity shares, delivering a potentially massive upside. If the IPO doesn’t move forward, each CCPS will convert into just 0.1 share, leaving investors with virtually no value.
Essentially, Class B is a high-stakes wager on whether OYO proceeds with its IPO plans in the current financial year. If the listing process begins on time, it could mean a substantial windfall for those who opted in.
The company has not provided a basis for arriving at the conversion ratio.
Such steps are common before an IPO to simplify complex shareholding structures built over multiple funding rounds. OYO has accumulated several share classes with different rights; this move likely helps simplify its cap table, reset face value, and create a cleaner equity base ahead of listing.
However, “an extreme conversion ratio like 1:1,109 is likely negotiated to produce a particular economic outcome (very large upside on IPO success), not an arithmetic “face-value reset" alone," explained Rohit Jain, managing partner, Singhania & Co., a law firm.
Why did the offer draw criticism?
The structure raised eyebrows for two main reasons: timing and asymmetry.
First, the email notice was sent late at night on 29 October, leaving investors only three working days to read and respond to a 50-page document outlining the terms. For most retail investors, this was far too little time—a move that spurred several shareholders to raise concerns on social media, calling the timeline unfair and the structure confusing.
Second, the difference between the two options—one share versus potentially 1,109 shares—created a vast gap in potential outcomes. This sharp asymmetry, combined with the short notice period, could favour insiders or sophisticated investors who had prior awareness of the structure, while smaller shareholders risked missing the opportunity altogether.
Unlike IPO completion (which depends on regulatory approval and market conditions) or financial performance metrics (which depend on business operations), banker appointment is a simple contractual step that management controls.
“This transforms the 'bonus' into a loyalty test or insider knowledge quiz rather than a genuine reward for shareholding," said Ankit Jain.
“It’s primarily a disclosure and investor-protection issue…but also a corporate governance red-flag because the conversion depends on a management-controlled act and can produce wildly asymmetric outcomes for smaller shareholders if the process/authority is not transparent and approved properly," said Rohit Jain.
How has OYO responded?
Following the pushback, OYO initially announced a one-week extension of the deadline, from 1 November to 7 November, giving investors more time to make their choice. However, the company eventually rolled back the bonus share plan.
The company also issued clarifications to reassure the market that neither founder Ritesh Agarwal, his holding entities, nor SoftBank Group companies would be eligible for the bonus CCPS issue.
OYO described the move as an effort to reward long-term shareholders who have stayed invested through the company’s private phase and continue to believe in its plan to go public.
Why link a bonus share to the IPO?
OYO has described the move as an effort to reward long-term shareholders who have stayed invested through the company’s private phase and continue to believe in its plan to go public.
On one hand, it aligns investor incentives with the company’s push to revive its public listing—rewarding those who continue to back the firm as it prepares for the next stage of growth. On the other, it serves as a confidence marker, hinting that the company expects tangible progress on the IPO front soon.
Still, tying shareholder rewards to uncertain corporate milestones such as the appointment of IPO bankers is unconventional, and reflects the creative but risky financial structuring often seen in pre-IPO phases.
What happens next?
The revised deadline of 7 November gives shareholders a little more breathing space, but the real story will unfold over the next few months. If OYO successfully advances its IPO process, the bonus CCPS could become a rare case of pre-listing value creation.
If not, the structure risks reinforcing investor unease around the company’s governance and timing discipline
Where does OYO stand in its IPO journey?
OYO is preparing for its third attempt at an IPO, restarting talks with Indian and global investment banks for a potential $7-8 billion listing. The company has raised over $3.5 billion from investors such as SoftBank, Peak XV Partners, Lightspeed, Airbnb and Microsoft—funding rapid expansion but leaving a heavy debt load.
In FY25, OYO reported its first full-year profit ₹244.8 crore, driven largely by tax credits and one-off gains, while revenue grew 16% to ₹6,252.8 crore. Its India business contributed ₹1,255.6 crore, with muted 4% growth, and finance costs of ₹959.16 crore continued to weigh on margins.
The profit, while symbolic, underscores that operating performance remains fragile despite headline improvements.
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