Backpacker hostel chain Zostel has approached the Securities and Exchange Board of India (Sebi), alleging that Oravel Stays (the parent firm of hospitality brand Oyo) has made incomplete, misleading and selective disclosures in its updated draft red herring prospectus (UDRHP-I). Consequently, Zostel is seeking corrective disclosures before Oravel proceeds with its initial public offering (IPO).
In its representation submitted to the market regulator, Zostel seeks to examine whether the company’s draft papers for public listing comply with disclosure norms under the Sebi (Issue of Capital and Disclosure Requirements) Regulations, 2018.
The development comes less than two weeks after Oravel filed its UDRHP-I for its proposed IPO, which comprises a fresh issue of shares worth up to ₹6,650 crore.
Oravel and Zostel are locked in a legal dispute over a failed acquisition attempt. While Zostel alleges that the other party did not complete the deal, Oravel maintains that the term sheet it signed was non-binding in nature.
In its UDRHP-I, Oravel mentioned that if the outcome of the legal proceeding is unfavourable, it can impact the company’s business. “Any adverse outcome in legal proceedings involving Zostel may materially and adversely affect our business, reputation, prospects, results of operation and financial condition, including potential issuance or transfer of up to 7 per cent of our shareholding,” it said.
Zostel’s representation does not ask Sebi to adjudicate the long-running commercial dispute between the two companies as the matter remains before the courts. It instead argues that the regulator should examine whether investors are receiving a complete and balanced account of the litigation. It added that while Oravel has disclosed the existence of the litigation, it has not made all relevant disclosures.
“The UDRHP-I… presents the dispute in a manner that is materially incomplete, selectively curated and capable of conveying a misleading impression to investors… Certain statements contained in the UDRHP-I reproduce Oravel’s litigation position in categorical terms without fairly disclosing that the arbitral record contains detailed findings and documentary material inconsistent with those statements,” the representation said.
According to Zostel, Sebi should determine whether the UDRHP-I satisfies the standard of fair, complete and balanced disclosure, whether material aspects of the arbitral and appellate proceedings have been adequately disclosed, and whether additional disclosure is warranted in the interests of investor protection.
