Zostel Hospitality Pvt Ltd has asked SEBI (Securities Exchange Board of India) to suspend the $1.2 billion IPO of OYO.
Zostel is a budget hotel and hostel aggregator.
It reasoned that Oyo’s “IPO is non-maintainable as Oravel’s capital structure is not final”.
The move comes after SEBI issued its observations in response to OYO’s Draft red Herring Prospectus (DRHP) on October 1.
Contents
The IPO
In its IPO, OYO will make a fresh issue of shares of up to ? 7,000 crore ($927.30 million) and an offer for sale of existing shares of as much as ? 1,430 crore.
It is seeking a valuation of $10 billion to $12 billion.
In its letter to SEBI, Zostel said that OYO violated SEBI’s ICDMR (Issue of Capital and Disclosure Requirements) regulations.
It specifically targeted “inadequate disclosures” in OYO’s filings with the market regulator.
Misrepresentation Of Facts
It has accused OYO of misrepresenting the facts in its DRHP and that its upcoming IPO omits disclosure of a 7% stake of Zostel’s shareholders in OYO’s parent entity.
Zostel and its shareholders “have the right to get issued in their favour 7% of the equity securities of Oravel”.
Since it has failed to grant these, it should be barred from making any public offer of its shares.
It is concerned that OYO’s listing could mislead the public with regard to the risk involved.
OYO Issues Statement
OYO in turn criticised Zostel and said that it is indulging in self-serving misrepresentation of the case facts and that it is an attempt to overreach Delhi HC proceedings.
In a statement it called its actions “unnecessary and repetitive efforts to create a wrong perception”.
It pointed out that it had become a pattern “of Zostel trying to distract OYO from pursuing its business goals”.
Arbitration
The statement specified that “award by the Arbitration Tribunal from March 2021 has not granted an award for the issue of any shareholding in OYO to Zostel”.
Rather, it had “merely given them the direction for seeking specific performance of the non-binding term sheet”.
OYO held firm that “no definitive agreements were finalised or executed between the parties” and that “the entire process was merely at the stage of exploratory discussions”.
Background
Zostel’s hotel business was acquired by the end of January 2016 by Oravel but the former consistently continued to delay the execution of definitive agreements and closing of the transaction till September 2017.
A proposed deal of ZoRoom’s acquisition of OYO in 2015 led to a transfer of a 7% stake of Ritesh Agarwal-led firm to ZoRooms.
The deal fell through after a minority investor in OYO objected to the buyout.
Deal Fell Through
ZoRooms meanwhile alleged that OYO sent a series of documents to the former after signing the term sheet in November 2016.
The documents showed agreement on the conditions of the contract, and sought details of employees and operations.
But eventually nothing materialised as a definitive agreement never got signed.
OYO defended that 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.
What Next?
An OYO counsel told Reuters late on Monday there was nothing in the order that prevented it from going ahead with its IPO.
However, Zostel’s move can potentially lengthen SEBI’s clearance process.
If SEBI finds merit in Zostel’s complaint, it would ask OYO to make specific disclosure in the proposal.
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