Legal tussle may derail Oyo's IPO

- The current dispute dated back to 2015 -Oyo and Zo Rooms had a merger talk

- But the proposal was failed leading to shutting down of Zo Rooms

- If merger successful, Zo Rooms would have got 7% stake in Oyo

- Zo Rooms is fighting the legal battle for the last 3 yrs

- In last March, Zo Rooms claimed that it had won the legal battle against Oyo with the arbitrator accepting its claim

- However, it's refuted by Oyo

- Legal tussle between Oyo & Zo Roms on stake transfer can create problem for Oyo in getting approval from Sebi

Bengaluru: Indian hospitality startup Oyo Hotels and Rooms is facing legal hurdle before its proposed initial public offering (IPO) as its past competitor Zostel (Zo Rooms) has approached the Delhi High Court over a botched acquisition deal.

According to sources in the know, Delhi High Court has adjourned the matter that was heard on Wednesday to October 7, 2021.

The counsel representing Zostel (Zo Rooms) said that the company has no intention to stop Oyo's initial public offering (IPO), but requested the court to set aside seven per cent stake in OYO before its IPO. The current dispute dated back to 2015 when Oyo and Zo Rooms had a merger talk, which was failed leading to shutting down of Zo Rooms. As per the term sheet, Zo Rooms would have got seven per cent stake in Oyo Hotels & Rooms if the merger became successful.

Zo Rooms is fighting the legal battle against Oyo Rooms for last three years. It has claimed in March that the company had won the legal battle against Oyo with the arbitrator accepting its claim, which was refuted by Oyo.

As SoftBank Group-backed Oyo prepares to go public and likely to file draft prospectus next week, the ongoing legal dispute is expected to create hurdle for the IPO.

"The legal tussle between OYO & Zo Roms with regard to stake transfer can create problem for OYO in getting approval from Sebi for its proposed IPO. When the matter is sub judice with claims and counter claims, OYO has to convince the regulator on the merits of its case," said a corporate governance official who wished not to be quoted.

Oyo is planning to come up with a $1.2 billion (around Rs8,000 crore) public offer. The hospitality startup was valued at $9.6 billion after a strategic investment by Microsoft Corp. in August. Currently, its founder Ritesh Agarwal holds He holds more than 30 per cent stake in Oyo's parent entity 'Oravel Stays'.

This will be another major IPO expected this year as domestic stock markets remain buoyant. After stellar debut of Zomato on Indian bourses, more than dozen firms are eyeing to go public in coming months. Companies like Paytm, Nykaa, PolicyBazaar, Delhivery & MobiKwik have filed for approval with Sebi for raising money from public.

Ride-hailing firm Ola, another company backed by SoftBank, is also looking to enter the domestic stock markets in the near future.