IndiGo Promoter Friction May Be Due To Related-Party Transactions

According to IndiGo’s chief executive officer, there’s just one issue pending resolution in the ongoing spat between the promoters of India’s largest airline. “Only one issue remaining, it is being debated and we are very optimistic it will be resolved shortly,” said Ronojoy Dutta in response to an analyst question during the company’s quarterly earning conference call on Monday, May 28.That may be about related-party transactions between IndiGo’s parent company InterGlobe Aviation Ltd. and private entities of one of its promoters, Rahul Bhatia, according to one person close to the company who spoke to BloombergQuint on the condition of anonymity.InterGlobe transacts with several companies owned by or connected to Rahul Bhatia for services ranging from ticketing to crew accommodation to simulation training. The value of these related-party transactions has increased from Rs 31 crore in financial year 2010-11 to Rs 315 crore in FY18, according to the company’s annual reports. The annual report for FY19 is yet to be published. To be sure, the transactions amount to just 1.3 percent of the airline’s revenue, but that’s almost double of the 0.8 percent in FY11.It isn’t the quantum of the transactions that’s created friction between the two shareholders, said the person cited earlier. Nor the commercial rationale. But the process in which they were determined has irked Rakesh Gangwal, the person said. Gangwal and Bhatia weren’t reachable for comment and IndiGo said it had no comment to make in response to BloombergQuint’s queries..News of differences between the two promoters of the airline—Rakesh Gangwal and Rahul Bhatia—was first reported by the business news channel ET Now. The company’s shares declined some 9 percent on that news. A few days later the company confirmed this in a statement, saying, “In any strong and well-managed company there will always be differences.” But it emphasised that those issues had nothing to do with recent management changes, nor were there any control issues, as had been alluded to in some media reports.The statement quoted Rakesh Gangwal as saying there was “no interest or desire whatsoever on the part of the RG Group to take control of the company”.Gangwal owns 37 percent of InterGlobe, the parent company of IndiGo. Bhatia owns 38 percent. Despite the parity in ownership, Bhatia has the right to nominate five directors on the IndiGo board of maximum six, as per a shareholder agreement between the two and the company’s Articles of Association. This and other clauses give him control of the airline. With the shareholder agreement due to expire in October, media reports had alleged that Gangwal was keen to renegotiate in order and give himself more power.Gangwal denied that in the IndiGo statement. “Also, to put to rest the messaging on the fact that the RG Group is attempting to renegotiate the shareholders agreement, I am placing on record that the RG Group stands by the current SHA (shareholder agreement) which, in any case, expires this October.”It’s not clear if the shareholder agreement will be sought to be renegotiated, though the market regulator SEBI has often frowned on such agreements in listed companies. Any shift in control or board composition would also require an amendment of the Articles of Association, and that would need 75 percent approval in a shareholder vote.InterGlobe’s board has already witnessed much change last year. Aditya Ghosh, president and whole-time director, stepped down in April 2018. Anil Parashar, a long-time associate of Bhatia, was reappointed to the board in October. MD Mallya, one of the two independent directors on board, and chairman, died in November. In January 2019, former chairman of Securities and Exchange Board of India M Damodaran was appointed as independent director and chairman.One more change is imminent. IndiGo needs to appoint a woman independent director as mandated by the SEBI for all listed companies. The deadline for this passed in April. IndiGo was aware of this requirement when it made replacements on its board—why it didn’t appoint a woman independent director as well, isn’t clear. Maybe this is another sticky point between the promoters.

IndiGo Promoter Friction May Be Due To Related-Party Transactions

IndiGo’s CEO says there’s just one issue pending in the promoter spat. Here’s what it may be.

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