Zostel urges Indian markets regulator to reject Oyo’s IPO plan

Visual from OYO website

Zostel Hospitality Pvt. Ltd, which owns Zostel Hostels and ZO Rooms, has written to markets regulator Securities and Exchange Board of India (Sebi), urging it to reject the draft prospectus filed by hospitality unicorn Oravel Stays Ltd, which operates brand Oyo and suspend the latter’s proposed initial public offering (IPO).

Citing the reason for its request, Zostel said Oyo’s “IPO is non-maintainable as Oravel’s capital structure is not final.”

“Accordingly, Oravel’s filing of the DRHP in the circumstances is illegal, in view of the stipulation contained under Regulation 5(2) of the Securities and Exchange Board of India Issue of Capital and Disclosure Requirements (ICDR) Regulations, 2018. Zostel’s shareholders have a right to get issued in their favour, 7% of the equity securities of Oravel. Oravel has failed to grant the same and hence is prohibited from making any public offer of its shares,” Zostel said in the letter.

Mint reviewed a copy of the 98-page letter sent by Zostel to Sebi. In the letter, Zostel has also alleged that (Oyo’s) DRHP is replete with material omissions and blatant misstatements, intended to mislead the public into investing in Oravel’s shares without an appreciation of the risks involved. In March, an arbitral tribunal ruled in favour of Zostel, calling the term sheet which promised ZO Rooms’ shareholders 7% of hospitality unicorn Oyo as a binding document.

According to Zostel Hospitality, ZO Rooms and Oyo had entered into talks for a merger in 2015, executing an agreement on 26 November that year. ZO Rooms completed its obligation under the agreement and transferred the business, but Oyo failed to transfer 7% to the ZO Room’s shareholder, Zostel alleged earlier.

While filing its draft prospectus for its $1.2 billion (₹8430 crore) IPO, Oyo cited that legal proceedings involving Zostel may materially and adversely affect its business as one of the many risk factors.

On 10 April, Oyo challenged the arbitral tribunal decision and sought a stay on the implementation of the award with the Delhi high court.

“Oyo condemns Zostel’s self-serving misrepresentation of case facts, and it is an attempt to overreach Delhi HC proceedings. After multiple attempts in the courts and arbitration tribunal, 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,” said Oyo responding to Mint’s queries on the matter.

This article was first published on livemint.com.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.