Zostel asks SEBI to Reject OYO’s $1.2 billion IPO

As Oravel Stays, the company that owns and operates the OYO brand, gets set for its Rs.8,430 crore IPO, it is likely to face a roadblock from a 6 year old deal that had failed. This pertains to the proposed acquisition of Zostel and Zo Rooms by OYO in 2015. The deal finally fell through and subsequent to that Zostel had to shut down its business. Now Zostel has written to SEBI about the breach of terms by OYO.

Check - Oravel Stays (OYO) Files for Rs.8,430 Crore IPO

According to the letter written by Zostel to SEBI, OYO was required to transfer 7% of the equity to Zostel shareholders as part of the agreement. The agreement had also included a clause that till that agreement was executed, OYO would not be permitted to alter its capital structure. Zostel has alleged that this IPO, which was a combination of fresh issue and an offer for sale, was a clear alteration of capital.

In its letter to SEBI, Zostel has underlined that the IPO of Oravel Stays was in contravention of the ICDR regulations as OYO had not met the conditions for alteration of capital. Zostel also alleged that the investment bankers to the issue had done inadequate due diligence in putting up the IPO proposal to SEBI for approval.

Zostel and OYO have been fighting a pitched legal battle since the last 6 years. In Mar-21, a Supreme Court appointed arbitrator had ruled that OYO was in breach of the agreement for the acquisition of Zostel. It also added that Zostel was entitled to go ahead and execute the definitive agreement giving it legal sanction.

This arbitration order was challenged by OYO in the Delhi High Court and in response Zostel had filed an execution petition and a petition to restrain OYO from going ahead with the IPO. Zostel has already sent a notice to OYO to enforce the award which includes the transfer of 7% of shares of the current capital to the shareholders of Zostel. The case is coming up for hearing in the Delhi High Court on 21-Oct.

While OYO has dismissed these claims of Zostel as being fictitious, SEBI is likely to be wary of approving the DRHP if there are pending legal orders pertaining to the essence of the IPO. It looks like challenging times for OYO in the days ahead.

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