OYO IPO: Zostel moves SEBI; OYO calls it 'unnecessary and repetitive' efforts

Zostel Hospitality Pvt Ltd has written to the market regulator SEBI (Securities Exchange Board of India), seeking the suspension of $1.2 billion IPO (initial public offering) of OYO. This comes at a time when SEBI has issued its observations in response to OYO's Draft red Herring Prospectus (DRHP) on October 1.

Top company sources confirmed to BusinessToday.In that Zostel has expressed its concerns on the violations of SEBI's ICDMR (Issue of Capital and Disclosure Requirements) regulations by OYO, especially "inadequate disclosures", in its filings with the market regulator.

Zostel alleged that OYO has misrepresented the facts in its DRHP and that its upcoming IPO doesn't include the disclosure of a 7 per cent stake of Zostel's shareholders in OYO's parent entity.

Zostel, which is a budget hotel and hostel aggregator, said OYO's listing on the stock exchanges could mislead the public with regard to the risk involved.

Oyo, while maintaining that award does not direct the company to issue any shares to Zostel or its shareholders, said it condemns Zostel’s self-serving misrepresentation of the case facts, and that it is an attempt to overreach Delhi HC proceedings.

“Zostel’s communication shows unnecessary and repetitive efforts to create a wrong perception. This shows a pattern of Zostel trying to distract OYO from pursuing its business goals. The repeated reliefs being sought are not consistent with an award by the Arbitration Tribunal from March 2021, which has not granted an award for the issue of any shareholding in OYO to Zostel. It had merely given them the direction for seeking specific performance of the non-binding term sheet. The Tribunal had ruled and categorically acknowledged that the definitive agreements were neither finalized nor agreed upon. OYO reiterates that the entire process was merely at the stage of exploratory discussions, and no definitive agreements were finalised or executed between the parties,” Oyo said in a statement.

This is after the Delhi High Court adjourned the matter to October 21 in response to a petition filed by OYO, which was seeking to challenge an earlier arbitration award. The single-member tribunal had recognised Zostel's right to execute the definitive agreement between the companies and go ahead with the legal proceedings.

The issue pertains to a 2015 proposed deal of ZoRoom's acquisition of OYO, resulting in a transfer of a 7 per cent stake of Ritesh Agarwal-led firm to ZoRooms. The deal was not implemented after a minority investor in OYO objected to the buyout.

ZoRooms, on the other hand, alleged that OYO after signing the term sheet in November 2016 sent a series of documents to the former, agreeing upon the conditions of the contract, asking for the details of employees and operations, and finally not signing a definitive agreement.

OYO, which had earlier approached the Delhi HC, challenging the award, has maintained there was no transfer of assets between companies, no definitive agreement signed and that the hospitality chain backed out of the deal after carrying out due diligence.

Also read: OYO IPO: A sour deal with Zostel six years ago is back to haunt Ritesh Agarwal’s firm