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Why is the OYO IPO not approved yet?

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OYO Rooms, commonly known as OYO Hotels & Homes, is an Indian multinational online travel agency (OTA) that offers homes and living spaces. OYO was founded in 2013 by Ritesh Agarwal and consisted primarily of affordable motels at the time. Thousands of hotels, holiday homes, and millions of rooms have opened across more than 80 countries, including India, Malaysia, the United Arab Emirates, Nepal, China, Brazil, Mexico, Saudi Arabia, Sri Lanka, Indonesia, Vietnam, and the United States and many more.

In 2021, Oyo plans to raise between $1 billion and $1.2 billion through a potential stock offering as well as a share sale to existing shareholders. According to Reuters, the company plans to file its initial public offering documents in September, joining plenty of Indian start-ups seeking to go public this year. But Zostel, on the other hand, has sued Delhi High Court in August to restrict Oyo from changing its ownership structure, even through an IPO.

A six-year-old agreement between OYO Hotels and Rooms and competitor Zostel has come back to haunt the Ritesh Agarwal-founded company ahead of its $1.2 billion IPO. OYO attempted to buy several of Zostel's businesses in 2015, and in exchange, Zostel received a 7% ownership in OYO. However, the deal failed, and a lengthy court struggle ensued over the terms. OYO said that no definite agreement had yet been made.

In 2018, the Supreme Court appointed an arbitrator, who concluded in March that the deal's terms were enforceable, indicating that Zostel is entitled to its 7% ownership in OYO. According to the arbitrator, Zostel "did all within their power to fulfil their responsibilities," but OYO failed to fulfil its obligations by neglecting to sign a definitive agreement.

The arbitration judgement has been challenged in the Delhi High Court by Agarwal's hospitality enterprise.

"Until the parties come to an agreement on the terms of the definitive agreements and the same are not executed," OYO's legal counsel said in a statement on 29 October, "no entitlement whatsoever exists in favour of any party for any form of shares to be issued in OYO."

Paavan Nanda, a co-founder of Zostel, stated that the business will oppose any move by OYO to change its shareholding structure.

Through the process of an Initial Public Offering, a company can transform from a privately held to a publicly traded organisation (IPO). IPOs are typically used by firms to raise funds and gain access to liquidity by selling their stocks/shares to the general public. Before their shares may be publicly traded in India, companies must follow the IPO process as laid forth by stock exchanges. This IPO process includes drafting a registration statement as well as a written prospectus, often known as the Red Herring Prospectus (RHP). According to the Companies Act, submitting an RHP is required. This document contains all of the mandatory disclosures required by the SEBI and the Companies Act.

The company's disclosure of facts is then verified by SEBI, a market regulator. If the application is granted, the company will be able to announce the date of its first public offering (IPO).

Now the question arises will SEBI approve Oyo’s IPO or not?

According to the expert instructions, The Securities and Exchange Board of India (SEBI) is anticipated to look into the merits of a complaint submitted by competitor Zostel Hospitality against Oyo Rooms, which could cause the IPO to be delayed by a few days. Given the festivities this week, SEBI is willing to respond to Zostel's objection within a week. If the market regulator deems that the problem presented by Zostel can have a major impact on the company's operations and stakeholders, it may ask SoftBank-backed Oyo to make further disclosures or settle the disagreement before authorising the $1.2 billion initial public offerings (IPO).

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