OYO Hotels & Rooms, backed by SoftBank Group, is involved in a legal dispute with rival Zostel, ahead of its up to $1.2 billion IPO, over a six-year-old deal between the two Indian hospitality startups.
OYO seeks to go public through a fresh issue of shares and an offer for sale from existing shareholders to raise between $1 billion and $1.2 billion. The Ritesh Agarwal-led hospitality startup is expected to file draft papers for its upcoming IPO in the coming weeks. Zostel, on the other hand, has filed a lawsuit with the Delhi High Court to prohibit OYO from changing its shareholder structure, notably through an IPO.
OYO proposed to buy a few of Zostel’s businesses back in 2015, and in exchange, Zostel secured a 7% ownership in OYO. However, the deal fell apart, and a lengthy court battle ensued over the terms and conditions. OYO said that they had not yet reached the final agreement. Zostel is a backpacker hostel company that has been involved in a three-year court dispute with OYO after the aforementioned merger talks fell apart.
In 2018, the Supreme Court-appointed an arbitrator, who stated in March of this year that the terms of the agreement were binding, implying that Zostel is entitled to its 7% ownership in OYO. According to the arbitrator, Zostel “did everything within their control to complete their obligations,” but OYO violated its obligations by neglecting to finalise a definitive agreement.
The arbitration decision has been challenged in the Delhi High Court by Agarwal’s hospitality firm. The hearing between Zostel (Zo Rooms) and OYO in the Delhi High Court on Wednesday i.e. September 29, 2021, was adjourned to a later date.
In a statement issued on Wednesday, OYO’s legal counsel remarked, “Till the parties come to an agreement on the terms of the definitive agreements and the same are not executed, no right whatsoever arises in favour of any party for any type of shares to be issued in OYO.”
Paavan Nanda, Co-founder of Zostel, stated that the company will oppose whatever move by OYO to change its shareholding structure, according to media reports. Zostel’s counsel urged that a 7 percent stake be retained in escrow, but OYO’s lawyers strongly opposed the request. The case will be heard in detail on October 7 in the Delhi High Court.
The hospitality unicorn converted itself to a public limited company earlier this month. It has also elevated its authorised share capital from Rs 1.17 crore to Rs 901 crore and has chosen investment bankers like JP Morgan, Kotak Mahindra Capital, and Citi to oversee its initial public offering.