WeWork bankruptcy: Why the US company's Indian arm is unfazed by the insolvency

Co-working space giant WeWork’s decision to file for bankruptcy in the US marked a massive fall for a firm that had jumped to dizzying heights not so long ago. The SoftBank Group-backed start-up was valued at $47 billion in early 2019 and yet announced in October that it was unable to pay back debt.

The contrast between the boom-and-bust story of the global entity and its Indian arm couldn’t be starker. WeWork India—a 73:27 joint venture in which Bengaluru-based real estate major Embassy Group holds a 73 per cent stake—recorded a 75 per cent year-on-year jump in revenue in FY23, according to its CEO Karan Virwani.

The Indian arm has highlighted that it is an independent venture. But its independence and good financial performance may not shield it from the uncertainty that shrouds WeWork. According to Ambi Parameswaran, Founder of brand consulting firm Brand-Building.com, three outcomes are possible. First, the brand gets a new owner and dies a slow death. Second, it gets an energetic new owner who breathes life into it. And third, it is divided and sold, in which case the brand ceases to exist. “In the past, all of these have happened in cases of bankruptcy in the US,” he says. If the global brand gets diminished during the bankruptcy process, then the Indian entity may prefer to dissociate with WeWork, Parameswaran says. “When the mother brand gets hit due to incidences like bankruptcy, there are serious rub-offs for it across geographies,” says Harish Bijoor, Founder of consultancy firm Harish Bijoor Consults. He says a brand mired in controversy becomes a target for ridicule on social media, which further impacts its value.

WeWork Global had been under stress since the outbreak of the Covid-19 pandemic. First, it suffered from the closure of office spaces at the peak of the pandemic, and then from skyrocketing property prices and leasing rates in the US.

Even so, the global entity’s decision to file for bankruptcy couldn’t have come at a worse time for WeWork India. The Bengaluru-based company has been growing handsomely post-Covid-19 and even turned profitable.

According to Virwani, WeWork

India’s revenue jumped from Rs 800 crore in FY22 to Rs 1,400 crore in FY23, while its Ebitda (earnings before interest, tax, depreciation, and amortisation) stood at Rs 250 crore in FY23. And it sees that momentum increasing in FY24, with Virwani expecting to end the year with 40-50 per cent year-on-year growth in its revenue. “I expect this trend to continue for the next two years,” he tells BT. WeWork India has over 90,000 desks and 6.5 million sq. ft of space, spread across 50 locations in seven cities. Virwani says the firm is well positioned to add 20,000 desks every year.

WeWork Global has a 27 per cent stake acquired for $100 million at the height of the Covid-19 pandemic, when the Indian arm needed cash. Though WeWork India has refused to reveal what it intends to do, sources say the Embassy Group is looking to buy back the stake. Experts say this could be the ideal time, as it may get the stake at a cheaper valuation.

Virwani, meanwhile, is unfazed. “Any development globally has no bearing on the operations of the business. In India, we will continue to operate and serve our members, landlords, and partners as usual,” he says. “We are backed by the Embassy Group. We have achieved consistent and sustainable growth, operationally and financially.”

In fact, Virwani is moving ahead with plans to expand. “We always have a situation where demand is ahead of supply. Our goal is to have 15 million sq. ft capacity—up from 6.5 million sq. ft now. I believe there is enough room for us to grow,” he says.

@arndutt