FHRAI

INDIA

  • Home
  • Press Releases
  • FHRAI MAKES SUBMISSION TO SEBI TO SUSPEND OYO IPO CITING GROSS IRREGULARITIES & FRAUDULENT DEALINGS

News Details

FHRAI MAKES SUBMISSION TO SEBI TO SUSPEND OYO IPO CITING GROSS IRREGULARITIES & FRAUDULENT DEALINGS

25 th Oct 2021

Objecting to gross misstatements and inadequate disclosures contained in the Draft Red Herring Prospectus (DRHP) issued by Oravel Stays Limited (Oravel / Oyo), the Federation of Hotel & Restaurant Associations of India (FHRAI) has made an official submission to Securities and Exchange Board of India (SEBI) to suspend its Initial Public Offering (IPO) process. The eight page submission addressed to SEBI draws attention to irregularities like being engaged in anti-competitive business practices; inadequate disclosures of critical court cases; no disclosure on scenarios that may result in the holding company losing control of management of key subsidiaries, or entirely making the current business strategy unviable, should the rulings go against them; and, valuations that appear impossibly stretched when corroborated with other numbers disclosed in the DRHP, among others.

“The investigation by the Competition Commission of India (CCI) is a serious one. To our understanding, there has not been a single instance where a company being investigated for anti-competitive practices by the Director General of the CCI has been permitted to initiate an IPO. It is also pertinent to note that Oravel in the Risk Factors section in the DRHP, has failed to adequately disclose the consequences of an unfavourable verdict. They have disclosed the consequences of a possible penalty imposed by the CCI, but haven’t disclosed that the CCI also has the power to direct behavioural changes to be undertaken by Oravel, which may completely upset the anticompetitive business practices engaged by them. Without this advantage, their revenues will be seriously impacted,” reveals Mr Gurbaxish Singh Kohli, Vice President, FHRAI.

 

The submission to SEBI further states that based on the information filed by FHRAI with the CCI, the latter found a prima facie case for initiating investigation for violations of the provisions of the Competition Act, 2002.  Accordingly, it directed the Director General to investigate the violation vide order dated 28.10.2019. The investigation is currently at an advanced stage. The DRHP filed by Oravel fails to disclose that there has been no stay on the prima facie findings of the CCI or the investigation. Moreover, instead of making a fair disclosure, Oravel, in its DRHP, has tried to confound investors by conflating irrelevant issues relating to the interim reliefs sought by RubTub Solutions Private Limited (“Treebo”) and Casa2Stays Private Limited (“FabHotels”).

“Oravel’s definition of material litigation is excessively restrictive and fails to take into account a large number of litigations/ proceedings commenced against it and its subsidiaries. As mentioned in their DRHP, the Patrons are not established financial conglomerates, but small businesses. We have submitted to SEBI that as majority of the litigants are small businesses they have not been accounted for or adequately disclosed in the DRHP. We also believe that while individual undisclosed disputes may, on their own, not cause a material impact, the cumulative effect will deeply impact the financial health of the Company as well as its goodwill in the industry. This is particularly relevant when it is considered that Oravel has attempted to avoid a large number of contractual payment obligations to members of FHRAI by claiming Force Majeure and Frustration on account of COVID-19,” adds Mr. Kohli.

Revealing details of inadequate disclosure of insolvency proceedings, the submission states that the DRHP completely fails to disclose that over 113 claimants with claims over Rs. 160 Crores had, pursuant to the Public Announcement, filed their claims with the Interim Resolution Professional. 15 members of the FHRAI with claims amounting to Rs. 34 crores have sought to be impleaded in the aforesaid proceedings before the Supreme Court. The application is pending consideration. These are in addition to an intervention application filed by FHRAI before the Hon’ble Supreme Court. “It is submitted that if the Hon’ble Supreme Court finds in favour of the Appellant, Impleaders or FHRAI, OYO Hotels and Homes Private Limited shall be forced to either settle with all its creditors or undergo Corporate Insolvency Resolution Process. Consequently, Oravel being the holding company of OYO, will lose control and management over OHHPL. The aforesaid details are self-evident in their materiality and their non-disclosure will cause great prejudice to potential investors. Thus in view of the same, it is essential for your good offices to defer/ injunct the IPO process in the interest of the investors,” states the submission.

FHRAI then exposes the inadequacy of disclosures on the subsidiaries. Drawing attention to the eighty subsidiaries incorporated all over the world it divulges that the DRHP doesn’t disclose the true nature of business of subsidiaries, their differences, overlap, interconnectedness and competitive nature with each other and with the holding company. “It is pertinent to note that Oravel operates its business under the trade name Oyo, which it shares with all its subsidiaries. Furthermore, a large number of the subsidiaries share the same website and have common directors and management. What is evident from the DRHP is that all the subsidiaries are engaged in the same business activities as Oravel. However, the DRHP is completely silent as to whether these subsidiaries compete against each other as well as Oravel. It is therefore evident, in our opinion, that the subsidiaries incorporated by Oravel are merely shell companies formed merely to transfer debts from one company to the other and have no real independent existence other than to hold the debts of the parent holding company, and to give a misleading picture of the financial health of Oravel,” says Mr Pradeep Shetty, Jt. Hon Secretary, FHRAI.

Finally, the submission draws SEBI’s attention to over valuation of Oravel’s business and non- disclosure of criminal proceedings pending against it. FHRAI points out that a large number of the FIRs have been registered under Sec. 420, 406 and 409 of the IPC some of which are grievous economic offences entailing a maximum punishment extending up to imprisonment for life.

“In view of the aforesaid circumstances we request your good offices to suspend the IPO process till such time the deficiencies pointed out herein above are rectified so as to protect the interest of all stakeholders as well as the general public. FHRAI also remains available to assist your good offices in any manner as deemed necessary,” concludes Mr Kohli.

CONTACT US

THE FEDERATION OF HOTEL & RESTAURANT
ASSOCIATIONS OF INDIA

Address:

B-82, 8th Floor, Himalaya House, 23,
K. G. Marg, New Delhi-110 001

Telephone: 011-40780780

E-mail: fhrai@fhrai.com

WRITE TO US

Characters Remaining