Bengaluru-based ride hailing and electric vehicle maker Ola is looking to raise over $500 million in debt from US investors in a so-called Term Loan B (TLB) deal, joining technology peers Oyo and Byju’s that have previously tapped this market to raise debt, said two people aware of the development.
Investment banks JP Morgan and Deutsche Bank are advising the company on this fundraise, they added.
Earlier this month Byju’s raised $1.2 billion through a TLB deal to spend on acquisitions, while in July, Oyo raised $660 million to refinance existing debt, becoming the first Indian tech company to tap the TLB market.
Institutional investors such as hedge funds, which seek higher yields and can tolerate longer investment horizons than traditional banks, offer such loans, which are similar in characteristic to high-yield bonds.
TLBs typically have a floating interest rate, with tenures of 5-7 years.
A large part of the principal and accrued interest are to be paid on maturity, making such loans attractive for young, fast-growing companies with high cash burns and weak cash flows to support quarterly interest payments as required in bank borrowings.
On Monday evening, international rating agency Moody’s said that it has assigned a first-time B3 corporate family rating (CFR) to ANI Technologies Pvt Ltd (Ola). At the same time, Moody’s has assigned a B3 rating to the company’s proposed senior secured term loan. Ola’s wholly-owned subsidiaries — Ola Netherlands B.V. and Ola USA Inc. — are the borrowers. The loan is guaranteed by Ola and its subsidiaries.
The proceeds from the term loan will be used for general corporate purposes, Moody’s noted.
“Ola’s B3 CFR reflects its loss-making operations and high execution risks associated with its international expansion plans as well as its venture into India’s competitive and fragmented food delivery and vehicle commerce sectors,” said Stephanie Cheong, a Moody’s Assistant Vice President and Analyst in a note.
Moody’s said it expects a high level of spending will be required to support Ola’s growth plans, such that the company’s annual cash burn (cash flow from operations fewer capital expenditures) will double to $140 million for at least the next two years, from $73 million in the year ending 31 March 2021.
It added that Ola’s cash and cash equivalents of $279 million as of 31 March 2021 will just cover the company’s expected cash burn and scheduled debt maturities through December 2022.
“As a result, the B3 rating is also premised on the successful completion of Ola’s term loan transaction as planned, which will provide the required liquidity to sustain its operations beyond the next 12 months, as well as execute its growth plans,” said Cheong.
On the other hand, Moody’s added that the ratings will likely face downward pressure if the proposed transaction is delayed or if the funds raised are lower than the company’s target of $500 million, in the absence of any alternative funding that shores up liquidity by year-end. Additional acquisitions or investment plans that further deplete liquidity would also add negative rating pressure.
Ola is preparing to go public on Indian stock exchanges next year targeting to raise as much as $1.5-2 billion, Mint reported on 31 August.
Spokespersons for Ola and Deutsche Bank could not be immediately reached for comment. JP Morgan declined to comment on the development.
The article was first published on livemint.com