Zostel (Zo Rooms) has written to markets regulator the Securities and Exchange Board of India, requesting it to reject Oyo‘s draft red herring prospectus (DRHP) and suspend its proposed initial public offering (IPO). ET has reviewed a copy of the letter. We
first reported Zostel’s plan to move Sebi on October 4, saying it had firmed up plans to ask the regulator to restrict Oyo’s $1.2-billion IPO, citing its ongoing legal dispute with the Gurgaon-based firm.

In its letter to Sebi, 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) Regulations, 2018 (ICDR Regulations).”

It added, “The DRHP is replete with material omissions and blatant misstatements, intended to mislead the public into investing into Oravel’s shares without appreciation of the risk involved.”

Interestingly, Zostel’s note includes a presentation by Oyo promoter SoftBank, which in an earnings report in 2016 mentioned that Oyo had acquired Zostel.

Zostel, Oyo’s erstwhile rival, said its shareholders “have a right to get issued in their favour, 7% of the equity securities of Oravel”. It added that since Oravel has failed to grant these, it should be prohibited from making any public offer of its shares.

“The management, the directors, the officers and the independent directors of Oravel, as well as book running lead managers of the IPO have been derelict in their duty to carry out necessary due diligence in the matter, resulting in their failure to ensure Oravel’s adherence to the norms and regulations enacted to prevent companies from defrauding the investing public,” Zostel told Sebi.

Oyo, in previous statements, has
rejected Zostel’s claim that it ought to receive a 7% stake in the firm, saying
Zostel is trying to “distract” it from its business.

Earlier this year, Oyo challenged the
Supreme Court-appointed arbitrator’s award in favour of Zostel in the Delhi High Court. In August, Zostel moved an application seeking to stop Oyo from modifying its cap table, “including by way of an IPO”. These pleas are slated to be heard next in the high court on October 21.