Embassy to raise $200 mn to grow WeWork in India

Less than a month after WeWork’s initial public offer (IPO) was indefinitely postponed and its co-founder Adam Neumann asked to step down as the company’s chief executive, WeWork India is in the market to raise $200 million to fund its growth.

WeWork India, which is a wholly-owned subsidiary of Bengaluru-based Embassy Group, has drawn up plans to almost double the number of co-working spaces in India, from 48,000 desks to 90,000 desks by next year. As per Embassy Group’s contractual agreement with The We Company, which owns and operates the brand WeWork, they need to operationalise 90,000 desks by June 2021 in order to retain the franchise rights in India.

“Due to the lack in valuation, we won’t be raising the $200 million through equity but through structured debt,” Jitendra Virwani, chairman and managing director of Bengaluru-based Embassy Group clarified at a roundtable event in Bengaluru on Thursday.

When Japanese tech giant SoftBank invested over $10.5 billion in The We Company in January this year, it commanded a $47 billion valuation. But lukewarm interest from the bulls of Wall Street for the company’s IPO brought the valuation down drastically.

“If we were to go by the thumb rule of the [present] $14 billion valuation (of The We Company), WeWork India should be valued at $3 billion. That’s based on the valuation of per desk,” adds Virwani.

Interestingly, early this year, Virwani was looking to sell 70% state in WeWork India to The We Company and its storied investor Softbank, for a consideration of over $1 billion. According to him, the valuation was then too much lower than The We Company’s sky-high valuation.

“When it was $47 billion this entity [WeWork India] was worth $11 billion. But we decided to sell at $3 billion. Reason: Which investor would buy?” Virwani told Fortune India on the sidelines of the event. However, the deal with The We Company and Softbank fizzled out. “They wanted to buy [majority stake] in stages, while we were not keen on selling it piecemeal.”

Despite all the bad press that WeWork received for its business model, corporate governance issues, and the high-flying lifestyle of Neumann, Virwani believes in the co-working story. “It is a business that is here to stay,” says Virwani, whose Embassy Group has built 53 million square feet of commercial, residential, and retail space in India.

“With or without Adam [Neumann], co-working is here to stay. People and companies believe in this business,” says Virwani. And adds, “We are quite happy to be left alone and build the brand in India. We still have a good relationship with Adam [Neumann]; he’s a good guy and human being.”

The demand for co-working spaces or flexible workspaces in India is red hot, with the market now estimated to account for about 10% of the country’s overall office space absorption. Virwani says that would rise to 20% next year. And WeWork India already claims to have a 40% share of the market.

“We have always looked at it [WeWork] as a pure-play real estate company,” says Virwani, concurring with what many analysts said after reviewing the company’s IPO prospectus that WeWork was not what it was projecting itself to be: a tech company.

“It’s basically flexible space versus the traditional fixed space lease model. It’s got per person on a lesser square foot and is designed in a much different way to operate. It’s in a way an incubation space for our traditional customers.”

Meanwhile, Virwani is also readying plans to raise ₹4,000 crore from the sale of Embassy Group’s commercial assets. “We require ₹1,400 crore as growth capital and need another ₹1,500 crore to pare down debt on our residential portfolio,” he explains. Some of amount of residual funds could to be used as growth capital for WeWork India.