FHRAI urges regulator to reject Oyo’s proposed public issue

The Federation of Hotel & Restaurant Associations of India has asked the capital markets regulator to halt the proposed Rs 8,430 crore initial public offering of Oyo, claiming misrepresentation in the draft documents.

Oravel Stays, the parent company of Oyo, is engaged in anti-competitive business practices, the Federation of Hotel & Restaurant Associations of India said in a letter dated October 22 to the Securities and Exchange Board of India.

“We request that your office ought to reject the DRHP (draft red herring prospectus) and suspend the proposed initial public offering of Oravel Stays in the interests of investor protection,” FHRAI said in the letter.

However, Oyo has categorically disclosed in its draft IPO documents filed earlier this month that it is involved in a matter before the statutory regulator and “could be subject to penalties.”

The Competition Commission of India is investigating Oyo based on a complaint filed by FHRAI, which claims to have 55,000 hotels as members. The anti-trust watchdog identified a case for investigation into Oyo’s business practices under Section 26 (1) of the Competition Act, 2002.

“The DRHP filed by Oravel fails to disclose that there has been no stay on the prima facie findings of the CCI that Oravel violated the provisions of the Competition Act, nor is there any stay on the investigation initiated by the Director General in relation to the same,” the FHRAI said in its complaint to Sebi.

Probe ordered

The issue raised by FHRAI pertains to the abrupt termination of hotels, including those operated by Treebo and FabHotels, listed on MakeMyTrip, an online travel platform, following a commercial arrangement between MMT-Ibibo and Oyo.

According to Oyo, FHRAI filed a complaint against Oyo, MMT and Ibibo Group on April 5, 2019. The CCI then directed an investigation on October 28, 2019, to determine whether the agreement between MMT-Ibibo and Oyo contravened the Competition Act, 2002.

A plea by FabHotels, a smaller rival of Oyo, seeking to be impleaded in the case was granted on February 5, 2020.  Subsequently, Treebo also raised similar allegations.

“The CCI’s final determination with respect to the information filed by FHRAI and Treebo is currently pending,” the DRHP reads.

Oyo disclosed that there can be no assurance that the CCI will not pass any adverse order against the company, including a penalty which could be up to three times the profit of Oyo or 10 percent of the company’s turnover for each year of such non-compliance.

“In addition, we cannot assure you that the CCI will not order additional investigations as we expand our operations in India,” it added.

Oyo said in the DRHP that while the CCI has determined that Oyo did not have reservations regarding relisting the properties of FabHotels and Treebo, its final determination with respect to the information filed by FHRAI and Treebo is still pending.

“Oravel, in its DRHP, has tried to confound investors by conflating irrelevant issues relating to the interim reliefs sought by Treebo and FabHotels,” FHRAI said in its letter to Sebi.

It also stated that Oyo should disclose all litigation pending against it, along with the total cost of such litigation borne by the company, in order to enable potential investors to judge the viability of the company and assess the risk to any investment.

Referring to the insolvency issue initiated against Oyo earlier this year, FHRAI said 15 of its members with claims amounting to Rs 34 crore have sought to be impleaded in the aforesaid proceedings before the Supreme Court.

Moneycontrol has reached out to Oyo for comment. The story will be updated when the company responds.

Accuracy and accountability

While Oyo did not respond to the current complaint by FHRAI, in the past it has condemned “ill-informed, manufactured and baseless lies and allegations about inadequate disclosures” in its DRHP.

“FHRAI member hotels must demand accuracy and accountability from their office bearers about the falsehoods they are propagating,” it had said when FRHAI claimed it would reach out to Sebi against Oyo.

“FHRAI has assumed that no one will verify the accuracy of their claims by cross-checking existing disclosures in the DRHP. Oyo has been very transparent in disclosing all material cases and disputes we are facing in absolute adherence with the regulations,” it added.

FHRAI’s letter comes weeks after former Oyo rival Zostel, which has been embroiled in a more than five-year-long legal battle, sought the regulator’s intervention against the IPO.

Last week, a Bengaluru-based hotelier filed a complaint against Oyo, claiming misrepresentation in the draft prospectus. A partnership firm called Jagadish alleged that Oyo faltered on payments, neglected property maintenance leading to damage and abandoned hotel properties without proper termination of the agreement. It claimed Oyo owes Rs 10 crore.

Oyo on the other hand said that this was one of the few cases of disagreement with a hotel partner. This dispute was sub-judice and had been adequately disclosed in the DRHP.

Also read: Will SEBI approve Oyo's IPO? Here's what the experts say