Bengaluru: Hospitality startup Oyo Rooms (Oravel Stays Pvt. Ltd) plans to tap the venture debt route to raise fresh funds as it seeks to double down on its Townhouse property vertical in India this year.

The company, which recently raised $1 billion in equity, is in talks with several venture debt firms and some of the top private banks to raise several hundred crores in debt financing, said three people familiar with the matter. The idea is to use the funds to buy properties for Oyo Townhouse, as the company looks to deploy its recently-raised equity for overseas expansion, they said.

Oyo, founded in 2013 by Ritesh Agarwal, is bullish on Townhouse, which was launched in January 2017. Townhouse properties, owned and fully managed by Oyo, have played a key role in improving the startup’s image with customers.

“When they started with the marketplace, they didn’t need any leverage at that point," said a venture debt investor, requesting anonymity. “But once they got into Townhouse, there was a need for investing into the properties, which made them turn to debt financing."

Oyo is not the only one to diversify its balancesheet with debt. This is a trend and several top startups in the Indian ecosystem, including Swiggy, BigBasket, and Byju’s, have turned to debt even while racking up millions in equity funding.

“For most startups, if they are only using equity capital to grow, it gets expensive," said Vinod Murali, managing partner at venture debt firm Alteria Capital. “But with the larger startups, the idea of turning to debt financing would be more for a specific transaction—an acquisition perhaps or brand marketing or any situation where value is created ahead of assets," he said. In February, e-commerce logistics firm XpressBees raised 35 crore in debt financing from InnoVen Capital.

Oyo currently operates 88 Townhouse properties in India. “We have worked with multiple marquee NBFCs and new-age financial institutions to supplement our strong balance sheet and help our asset owners gain access to affordable financing solutions. Oyo will continue to explore such options in-line with our financing strategy," said an Oyo spokesperson.

Oyo recently raised a total of $1 billion in equity in a round led by SoftBank Group Corp. The round saw Chinese ride-hailing giant Didi Chuxing pumping in $100 million.

Oyo, which is present in 10 countries, recently committed to an investment of $200 million in its businesses in India and South Asia. The company says it is present in more than 259 cities in India, with over 8,700 buildings and over 173,000 rooms. The debt financing would play a significant role in expanding Townhouse properties in India, said the other person mentioned above.

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