OYO Rooms began as Oravel in 2012, founded by a 19-year-old Ritesh Agarwal back-packing across India.

Today, it is one of India’s most valuable unicorns and the sixth-largest hospitality chain in the world.

This month, it plans to file an IPO in Mumbai for Rs. 8,430 crores.

That is, if Zo does not get its way.

The art of the deal

In 2015, Zo Rooms (or Zostel) was one of OYO’s greatest competitors for the budget hotels market. If it could be called that.

From its very first fundraising round in 2015, OYO raised USD 100 million worth SoftBank money at a valuation of USD 400 million. Zo scraped by a meagre 6 million, in a round led by the already disillusioned Tiger Global.

To capture hotels in this incredibly competitive market, ZO offered hoteliers minimum guarantees irrespective of revenue – guarantees so high they burnt through its feeble resources.

The OYO deal, although non-binding, must have come as a lifesaver. OYO agreed to

“acquire the identified assets which would include intellectual property rights (trademarks and domain names), software, certain key employees and other assets”,

while Zo would receive

“total shares issued not exceeding 7% of the fully diluted shareholding”. Furthermore, all seven Zo co-founders were entitled to a payout of USD 1 million, and in return would exit the merged entity.

But in 2016, OYO terminated its end of the agreement.

In March this year, an arbitrator ruled that ZO had completed its end of the obligations; and despite it being non-binding, OYO’s actions were in breach of contract. ZO was thus entitled to obligations under the 2015 agreement. It dismissed ZO’s other claims, however, including the million-dollar payout for co-founders.

OYO claimed victory. Although obliged to proceed with the acquisition, it did not need to give over 7 per cent.

After all, this 7 per cent was supposed to reflect the value of assets – assets ZO no longer owns.

In a blog posted on September 28, OYO explained;

… the Award in itself has not issued Zostel or any of its shareholders any shares in OYO. The only relief, apart from costs, which has been granted to Zostel, is to initiate “appropriate proceedings” to execute Definitive Agreements.

So.

Here we are.

Zo petitioned the Delhi High Court to restrain OYO from modifying shareholder patterns, arguing that it was entitled to the 7 per cent. The hearing, set for the 7th, was adjourned to 21st October.

In response, Zo has approached the SEBI against OYO’s IPO with immediate effect. Zo explains that OYO forced their hand – they never intended to stop OYO’s initial public offering, merely preserve the rights of its shareholders.

No fury like a hotel scorned

The Federation of Hotel and Restaurant Associations of India, however, assuredly wants to stop the IPO. FHRAI protests OYO’s DRHP as misinformation, where OYO asserts that it does not have any outstanding criminal proceedings against it.

FHRAI maintains that OYO has defrauded hotels across the country – arbitrarily breaching contracts, adding opaque charges against hotel revenues, delaying payments for months, and even drawing from hotels’ security deposits on ludicrous charges.

OYO, some hotels allege, has also blocked them from registering on other such websites. Notably, the DHRP mentions Karmyogi Properties Pvt Ltd, which owns Hotel Abhay Palace in Ghaziabad.

Karmyogi initiated proceedings against OYO, alleging fraudulent declaration of revenues generated, fraudulent rendition of accounts since 2016, pending dues, etc.

OYO has dismissed these, as well as Zo’s charges, as malicious lies. It is determined to go forward with its IPO.

As far as whether it will ever happen?

Only time – and the SEBI – will tell.