SoftBank Group supported Oyo Hotels and Rooms faces a legal struggle with competitor Zostel ahead of its up to $1.2 billion business appearance over a deal among the two Indian hospitality startups that isolated six years ago.
Oyo seems to raise between $1 billion and $1.2 billion through a new share circulation and an offer for sale from current shareholders. The company is set to file draft initial public offering papers this month, Reuters reported last week, flanking a wave of Indian startups seeing to go public this year.
But Zostel submitted a petition in August with the Delhi High Court to prevent Oyo from changing its shareholder structure, including through an IPO, the petition, seen by Reuters, stated.
Their 2015 agreement was for Oyo to buy some of Zostel’s businesses, while Zostel would get a 7% stake in Oyo. The deal fell apart, but the firms have been in a long-running legal dispute over the terms, with Oyo argued they had not arrived at a conclusive agreement.
In 2018, India’s Supreme Court designated an arbitrator on the matter, who in March this year ordered that the terms of the deal were binding and Zostel was qualified to claim the 7% stake in Oyo.
Zostel “did everything within their control to fulfil their obligations” while Oyo breached its obligations by failing to produce a definitive agreement, the arbitrator shared.
Oyo has disputed the arbitration order in the Delhi High Court.
A legal adviser for Oyo responded in a statement to Reuters on Wednesday: “till the time that parties do not 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.”
Zostel is opposing any effort by Oyo to alter its shareholding structure, Paavan Nanda, Zostel co-founder, spoke in reply to Reuters.
Oyo’s lawyers in the court on Wednesday objected to requests from Zostel’s attorney to keep the contested 7% stake in escrow. The judge rejected this request and set an Oct. 7 date for a detailed hearing of the case.
Since its establishment in 2013 by CEO Ritesh Agarwal, Oyo has overgrown, competing with U.S. home rental business Airbnb and homegrown chains such as Fab Hotels and Treebo.
It manages operations in 35 countries, including India, Europe and Indonesia, and holds Sequoia Capital and Lightspeed Ventur ePartners among its other investors.