Zostel’s Petition in Delhi HC adds New Twist in Oyo’s IPO Saga

Oyo Hotels and Homes is on the course to go public as they are preparing for an IPO of about $1 to $1.2 billion. However, the hospitality startup is now facing a legal hurdle in this course over a failed acquisition deal. Zostel or Zo Rooms, the victim here, has now approached the judiciary for a resolution regarding this issue.

Zostel, another hospitality startup, claims that Oyo has breached a binding agreement related to a buyout put in place 6 years ago. Thus, Zo Rooms has now approached Delhi High Court regarding this matter. Now, this can derail Oyo’s efforts to go public this year.

In conversation with a leading news agency, the legal counsel of Zo Rooms mentioned that they moved to the court in late August. They aim to seek an interim order on Oyo’s IPO. The plan here is to stop Oyo from restructuring its shareholding and cap table.

A Context to this Legal Battle

This is not the first time that Zostel and Oyo are ‘locking horns’ over this legal dispute. However, this matter was with an arbitrator appointed by the Supreme Court of India, who declared that Oyo is at fault here.

In March 2021, a former Chief Justice of India, AM Ahamadi, in his hearing, said that the term sheet between Oyo and Zostel is a binding one. But, after a point, Oyo did not do enough to respect its side of this term sheet. Also, they did not complete the responsibilities mentioned therein.

However, since this matter landed in court, Oyo has challenged the arbitrator’s order. Their official position is that this term sheet is non-binding. Whereas, this order has clearly mentioned that Zo Rooms is entitled to take appropriate measures to find an agreement with Oyo for its rights.

The Current Scenario

In its plea to the Delhi High Court, Zo Rooms have mentioned Microsoft’s investment in Oyo and its IPO proposal. The legal counsel of Zostel said that no company is eligible to go public with any outstanding convertible securities or other agreement that entitled a person or entity to receive equity shares.

He further added that Oyo should not launch its IPO, and Zostel qualifies to receive equity shares.

Now, Delhi High Court will listen to the pleas from both parties on 29 September 2021, Wednesday. Here, the legal team from Oyo plans to ask for a stay order on this earlier ruling by the Supreme Court-appointed arbitrator.

Oyo’s Reply

In response to this, the legal counsel of Oyo mentioned that Zostel’s plea to seek relief is beyond any scope of the award. This award does not extend any relief to Zostel or its stakeholders, which allows them to ask for Oyo to freeze its restructuring of shareholding patterns.

Therefore, Oyo’s official stand is that this petition is not valid as it has no merit.

The Dispute

This dispute between Zostel and Oyo dates back to 2015. At that point, the companies began talks of a merger, but this deal never materialised. This, however, led to arbitration.

Zo Rooms, now sighting the arbitrator’s order, mentioned that they have a 7% stake in Oravel (Oyo’s Parent company). However, Oyo has always regarded these claims as invalid. The company further mentioned that Zostel is operating under the wrong perception. They also added that Zostel is trying to disrupt Oyo’s attempt to fulfil its business goals.

Since Oyo Hotels and Homes is targeting a valuation of about $12-15 billion, a 7% stake will amount to $672 million.

Bottom Line

This new legal battle is surely a dent in Oyo’s prospect of launching an IPO. The legal counsel of Oyo Hotels and Homes mentioned that, till both parties come to an agreement or the Delhi High Court rules in their favour, the IPO proceeds will be delayed.

Oyo was earlier reported to file its DRHP this week, but that prospect seems unlikely till the court proceedings are over. So, if you are planning to invest in this public issue, you might need to wait a bit.

For further updates on Oyo’s IPO and other latest stock market news, keep referring to the Angel One Blogs.

Frequently Asked Questions

1. Who are the lead managers of Oyo IPO?

Kotak Mahindra Capital, Bank of America, Nomura, and ICICI Securities are the lead managers of this IPO.

2. What is the price band of Oyo IPO?

The price band of this initial public offering is not available yet.

3. How can I invest in this Oyo IPO?

You can invest in Oyo’s public issue via Angel One platform. But do not forget to link your bank account and Angel One account with your UPI ID.