With December 30 EGM, is the end in sight for IndiGo promoters’ dispute?

The December 30 extraordinary general meeting (EGM) convened by InterGlobe Aviation, the parent company of IndiGo, will likely result in the resolution of the over two-year-long acrimonious boardroom battle between the promoters of India’s largest airline.

A regulatory filing to this effect on Monday left many across India Inc. surprised, giving rise to speculation of a resolution in the offing. The two warring factions of InterGlobe Enterprises (IGE) Pvt. Ltd and Rahul Bhatia – known as the IGE Group – and Rakesh Gangwal, The Chinkerpoo Family Trust and Shobha Gangwal – comprising the RG Group – had collectively requisitioned the shareholders’ meeting on November 25.

The EGM seeks to amend the articles of association (AoA) to allow the transfer of shares by the promoters to a third party. Together with their related entities and individuals, Bhatia and Gangwal control a staggering 77.4 per cent stake in InterGlobe Aviation.

The move has been prompted by the brewing competition in the domestic civil aviation industry and a high valuation that the IndiGo stock currently enjoys in the market, experts told BusinessToday.in.

“The joint requisition for an EGM for removing the share transfer restriction currently provided for in the AoA appears to be a sign of a truce between the two promoters of InterGlobe Aviation. The two have been engaged in a bitter boardroom battle since July 2019, when Gangwal filed a complaint against Bhatia before the SEBI alleging lapses in corporate governance,” opined partner at the law firm Numen Law Offices, Arush Khanna.

“The way markets are moving and competition in the Indian aviation industry is heating up, they would be happy to sell off some part of their stake. As of the moment, InterGlobe shares are selling at a very high valuation. It’s, therefore, a good time for them to settle the issue by parting on happier terms,” said founder & CEO Sana Securities, Rajat Sharma.

The dispute emanated from a shareholders agreement signed in 2015 between the two, which Gangwal alleged gave unusual rights to Bhatia including the right of first refusal (RoFR), in the event the former wished to transfer or divest his shareholding.

Even as the agreement expired in 2019, the provision for RoFR still exists in the AoA. The IGE and Bhatia had even invoked arbitration before the London Court of International Arbitration (LCIA) against Gangwal alleging breach of the agreement.

“Although the details of the award have not been disclosed, it appears that Gangwal came out on top since it is he who moved the Delhi High Court seeking enforcement of the same,” suggested Khanna.  

A proactive move:

Following the arbitral proceedings and the prospect of competition intensifying in the Indian skies in the coming months, it appears IndiGo management has finally decided to bury the hatchet.

“Air-India is taken by the Tata Group while we will soon have a new airline in Akasa Air. Tata Group seeks to consolidate its share with Air India, Vistara and Air Asia. Moreover, the outlook is not very bright for the sector owing to the pandemic situation. In this scenario, it is unwise for partners to continue fighting,” asserted Sharma.

Additionally, in the recent past, several instances of corporate governance and boardroom battles have surfaced in companies like the Tata Group, Zee-Invesco and Videocon. Against this backdrop, Khanna feels the move by the company management is proactive.

“Although this inter-promoter dispute did not affect IndiGo’s operational performance the calling of this EGM is a step in the right direction. With Tata’s existing stake in rival airlines Vistara and its recent acquisition of Air India, IndiGo – currently India’s largest airline – cannot afford to be complacent and compromise on best practices for enhancing shareholder value and also in the public interest,” he declared.

The company posted a net loss of Rs 1435.7 crore in the July-September quarter of the current financial year compared to a net loss of Rs 1,194.80 crore in the year-ago period even as capacity returned in terms of average seat kilometres (ASKs) and passenger yields. These gains were largely derived on the back of festive season travel. InterGlobe Aviation shares ended at Rs 1988.10 on Wednesday, up by Rs 45.35 or 2.33 per cent on BSE. As of date, the airline has a market cap of over Rs 76,000 crore.

With more than 50 per cent share of the domestic traffic, IndiGo has thus done well by sending the right signal to the market at this point.