Oyo IPO: Zostel Urges SEBI to Reject Oyo’s DRHP

Zostel Hospitality Pvt. Ltd, owner of ZO Rooms and Zostel Hostel has recently written to the Securities and Exchange Board of India. The hospitality company urged the market regulator to reject the Draft Red Herring Prospectus filed by Oravel Stays Ltd. Oravel operates Oyo and is its parent firm.

Zostel requested SEBI to cancel the latter’s proposed IPO, citing that Oravel’s capital structure is not yet final; hence, Oyo’s IPO is illegal and non-maintainable.

Wondering what’s all about this legal battle between these two companies?

Let us find out.

All About Zostel’s Urge to Reject Oyo’s DRHP

In its letter, Zostel stated that Oravel’s DRHP filing under these circumstances is illegal. In addition, shareholders in Zostel have the right to receive 7% of the equity securities of Oravel. Consequently, Oravel has failed to provide the same to its shareholders. As a result, it cannot publicly offer its shares.

As per the 98-page letter, Zostel has also mentioned that Oyo’s DRHP is filled with material omissions and obvious misstatements. This IPO plans to mislead the public to invest in Oravel’s shares without acknowledging the risks involved.

Further, this letter also mentioned that the independent directors, management, officers and directors of Oravel have been irresponsible in carrying out necessary continuity. This led to the company’s failure in assuring Oravel’s devotion to the regulations and norms, which were placed to prevent firms from cheating the investing population.

Legal Battle Between Oyo and Zostel

According to Zostel, Oyo and Zostel entered an agreement on 26th November 2015. This agreement was related to talks with a merger. As per the agreement, ZO Rooms finished its obligation by transferring its business. However, Oyo failed to convey 7% to ZO Room’s shareholders.

Earlier, when filing its DRHP, Oyo addressed these legal matters with Zostel could impose adverse effects on the business. This is one of the major risk factors of Oyo.

Further, on 10th April 2021, Oyo challenged the decision of the arbitral tribunal. It urged a stay on the execution of the award with the Delhi High Court.

Oyo commented on this development and responded that Zostel’s multiple courts and arbitral tribunal attempts bear no fruits. Its communication features repetitive and unnecessary efforts to generate a wrong impression.

Oyo added that Zostel is constantly trying to distract the firm from achieving its business goals.

Bottom Line

With Zostel’s intense efforts to sabotage Oyo’s business plans, the unicorn hospitality company is experiencing severe risks. Now, investors eyeing Oyo IPO need to see how it copes with this hardened situation.

Frequently Asked Questions

1. What is Oyo IPOs issue size?

Oyo plans to raise Rs. 8430 crores via its IPO. The IPO size will consist of a fresh issue worth Rs. 7000 crores and an offer for sale worth Rs. 1430 crores.

2. Who is the registrar of Oyo IPO?

Oyo IPOs registrar is Link Intime India Private Limited.

3. When was Oyo incorporated?

Oyo was founded in 2012.