OYO IPO now faces a hurdle from a hotels lobby with 55,000 members, aside from Zostel

• Misrepresentation of facts is a common acquisition faced by OYO by both these entities.
• FHRAI has also accused OYO of indulging in anti-competitive business practices.
• Zostel and OYO’s altercation arises out of a failed deal five years ago.

The Federation of Hotel and Restaurants of India (FHRAI) — which claims to have over 55,000 hotels and 500,000 restaurants under its umbrella — has reached out to the Securities and Exchange Board of India (SEBI), seeking suspension of OYO’s $1.2 billion initial public offering (IPO).

This is a second entity to reach out to SEBI with such demand. This is in addition to the 21 legal battles OYO is fighting.

Earlier this month, Zostel had approached the market regulator seeking cancellation of OYO’s IPO. Both these entities have completely different reasons behind this demand, however misrepresentation of facts is a common acquisition faced by OYO by both these entities.

OYO claims that they have made adequate disclosures in its DRHP. The company had condemned both Zostel and FHRAI previously for their allegations.

FHRAI — in an eight-page-long letter to SEBI — highlighted that OYO is engaged in “unfair, anti-competitive and fraudulent dealings and business practices.”

FHRAI’s complaint

The industry body also mentioned that they had approached the Competition Commission of India (CCI) as well, highlighting the anti-competitive practices of OYO. The antitrust watchdog had also initiated an investigation into OYO’s business and it is known to be in advanced stages, FHRAI added.

Even though OYO has disclosed the implications of CCI’s final judgement on its business in its draft red herring prospectus (DRHP), it has not highlighted that the antitrust watchdog has the power to direct behavioural changes to be undertaken. This may completely upset the anti-competitive business practices engaged by Oravel, the association said.

Similarly, OYO has “failed to disclose” the nature and consequences of litigations pending against it and its subsidiaries” that have the potential to disrupt the business, '' FHRAI added.

“That apart from the aforesaid non-disclosures/mis-disclosures, it is pertinent to point out that there has been not a single case to our knowledge that where a company being investigated for anti-competitive practices by the Director General of the CCI has been permitted to initiate an IPO by the SEBI. In view of the same, Oravel’s proposed IPO is premature and ought to be rejected/ deferred at this stage while a major investigation by the CCI remains pending,” FHRAI noted in the letter accessed by Business Insider India.

OYO had earlier said, "We strongly condemn the ill informed, manufactured and baseless lies and allegations about inadequate disclosures in our DRHP. FHRAI member hotels must demand accuracy and accountability from their office bearers about the falsehoods they are propagating."

"FHRAI has assumed that no one will verify the accuracy of their claims by cross checking existing disclosure in the DRHP. OYO has been very transparent in disclosing all material cases and disputes we are facing in absolute adherence with the regulations.

Zostel’s demand

OYO was in talks for a merger with Zo Rooms, a subsidiary of Zostel Hospitality, back in 2015, but the talks fell through. This eventually led to arbitration between the two companies.

A Supreme Court-appointed arbitrator found OYO to be in breach of the agreement, which made Zostel eligible for a 7% stake in the Gurugram-based hostel and hospitality giant.

This 7% stake would be worth $672 million, as OYO is now worth $9.6 billion.

OYO challenged the award before the Delhi High Court earlier this year. The case is currently ongoing at the Delhi High Court.

Zostel had also moved a fresh petition last month to the high court in order to restrain OYO from modifying its shareholding pattern, which would prevent the company from raising any more capital and even halt its IPO.

OYO had condemned Zostel’s plea SEBI, saying that the company is attempting to overreach the ongoing Delhi high court proceedings. "After multiple attempts in the courts and arbitration tribunal, Zostel’s communication shows unnecessary and repetitive efforts to create a wrong perception," an OYO spokesperson had told Business Insider.

The company has reiterated that the talks between Zo Rooms and OYO were in exploratory discussions and “no definitive agreements” were finalised. It added that the award of the Supreme Court appointed arbitrator did not direct OYO to issue any shareholdings to Zostel.

OYO had previously accused Zostel of forum hunting.

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