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BENGALURU : 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.

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