Rakesh Gangwal, the billionaire co-founder of Indian budget carrier IndiGo, has sought intervention from the country’s securities regulator to resolve alleged corporate governance issues at Asia’s biggest low-cost airline by market value.
The board of InterGlobe Aviation Ltd, which operates IndiGo, has received a letter dated July 8 from Gangwal, informing the company that he has sought help from the Securities and Exchange Board of India (Sebi), according a stock exchange filing by the carrier on Tuesday.
Sebi has asked the company to respond to the letter by July 19, with which IndiGo will comply, it said.
“Today, IndiGo is at a watershed moment,” Gangwal said in the letter to Sebi, which was released both by IndiGo and Gangwal, and was copied to a number of politicians and bureaucrats, including Prime Minister Narendra Modi. “It has started veering off from the core principles and values of governance that made IndiGo what it is today.”
An IndiGo spokeswoman declined to comment beyond the stock exchange statement. The other co-founder Rahul Bhatia couldn’t be reached.
IndiGo plunged as much as 10 per cent to Rs1,409.20 (Dh75.4) in early Mumbai trading Wednesday to its lowest level in almost three months. The broader S&P BSE Sensex index was little changed.
Gangwal said Bhatia, with whom he founded IndiGo in 2005, has “unusual controlling rights” over the airline due to a shareholders’ agreement, and is “building an ecosystem” of other companies that enter into related-party transactions. The founders were in talks over issues including paying rent for the airline’s headquarters, which is owned by Bhatia’s InterGlobe Enterprises Ltd, and crew staying at hotels where InterGlobe Enterprises has a stake, Chief Executive Officer Ronojoy Dutta told CNBC-TV18 last month. Gangwal had previously said he had no desire to take control of the airline.
“With the conflict between the two promoters coming out in the public in great detail, we do not envisage a settlement anytime soon,” Citigroup analyst Arvind Sharma said in a note to clients, reiterating his recommendation to sell IndiGo shares. “The uncertainty regarding the final resolution could cause weakness in the stock price.”
‘Violations of Law’
Bhatia’s InterGlobe Enterprises has the rights to appoint three out of six directors, the chairman, managing director, chief executive and the president of the company, Gangwal said. Board decisions at IndiGo are being made “without basic governance protocols and laws being followed,” he said.
“These unusual controlling rights seem to be the basis for the various violations of law and governance at IndiGo,” Gangwal said in his letter. “The nation can ill afford IndiGo to ever falter.”
Gangwal’s agenda is to “dilute and diminish” the controlling rights of InterGlobe Enterprises, and to relieve himself from the shareholders’ agreement and articles of association, Bhatia said in a letter to IndiGo’s board on June 12, according to a filing from the airline.
“This board level feud is an unnecessary distraction for IndiGo, which is best placed to benefit from upheaval in the Indian aviation market,” said Rahul Kapoor, an analyst at Bloomberg Intelligence in Singapore. “Even as we do not expect any operational or earnings impact, investors will be closely scrutinising the related-party transactions and seek greater clarity on future strategy.”
Former US Airways CEO Gangwal and former airline sales agent Bhatia created IndiGo, which quickly outpaced its rivals to grab almost half of the local market, making both billionaires. IndiGo is one of the few Indian carriers with enough cash to aggressively expand, and it’s been mapping out a way to build a long-haul, low-cost business to take passengers from places like New Delhi to London.