TOKYO -- India's Oyo Hotels and Homes will place thousands of employees on monthslong temporary leave to cut costs, admitting to "severe stress" as revenues have more than halved during the coronavirus pandemic.
In Japan, the company will use a secondment scheme within SoftBank Group, its biggest investor, to cut "personnel costs to more than half," according to an email sent to employees. A similar program was introduced earlier this year by an Oyo real estate affiliate in the country after its joint venture partner sold its $77 million stake for a nominal $3.
"A significant number of OYOpreneurs across the world are being placed on temporary leaves or furloughs of a minimum of 60 to 90 days," said Oyo founder and CEO Ritesh Agarwal in a video message to employees and other stakeholders. "What we have seen, is that because of the significant revenue drop, of 50-60%, the company's balance sheet runway has come under severe stress."
"As you all know, this situation of COVID-19 comes at a very unique time for OYO," Agarwal added. "This is right after we had a sizable restructuring of our company in January of this year. Due to that, I want to clarify for all of you that we intend to do no or negligible layoffs as a part of cost restructuring across the world."
Oyo laid off more than 1,800 employees in India this year as part of a process to reduce the global workforce from around 30,000 to 25,000.
Oyo's furlough will start with the U.S. for a minimum period of 60 days. It intends not to impact the employment status and salaries of employees in India during a 21-day countrywide lockdown which is scheduled to run until April 14, according to a person familiar with the matter.
In Japan, while furloughs or layoffs were not referred to in the email, Oyo Hotels Japan operating partner Prasun Choudhary acknowledged that overall revenue had dropped and said he had to "take some hard and fundamental cost-cutting measures," including "cutting personnel costs to more than half" and the secondment program.
Choudhary said the secondment program is "a very exciting opportunity for all employees to broaden and enhance their professional experience" and allows the subsidiary to "be flexible in its team size depending on the market." Details of the program have yet to be disclosed, including who will be subject to the program and at which SoftBank-backed companies these employees will start working.
"I expect the rest of the year to be very tough for OYO," Choudhary added.
Oyo Life, the Japan residential unit of Oyo, already started transferring employees, mainly in sales, to other SoftBank affiliates in Japan, such as WeWork and mobile payment company PayPay. The affiliate was suffering from heavy losses due to a subleasing agreement that requires the company to pay the rent for each listed residence, regardless of whether it is occupied.
Z Holdings, formerly Yahoo Japan, purchased a stake in Oyo Life in 2018 for 8.3 billion yen, according to documents and sources. This past November it sold its roughly one-third stake back to Oyo for 1 yen per share, a total of 339 yen ($3), according to documents seen by the Nikkei Asian Review.
With a reported valuation of over $10 billion, Oyo has become one of India's largest startups thanks in part to SoftBank's backing. The headwinds facing Oyo are shaping up to be a test of whether SoftBank can keep its financial discipline while it tries to restore investor confidence.
SoftBank's $9.5 billion bailout package for U.S. office sharing company WeWork last year came under fire from some analysts, and SoftBank CEO Masayoshi Son has since pledged not to make any more "rescue investments." SoftBank recently walked away from a $3 billion tender offer that was part of the WeWork bailout.
Additional reporting by Wataru Suzuki, Nikkei staff writer