(Photo: Mint)
(Photo: Mint)

IndiGo crisis: What is at stake?

  • The shareholder dispute could dent investor confidence, delay decision making on key issues and invite avoidable regulatory attention
  • The shareholder spat has come out at a time IndiGo needs to focus attention on making gains in a market that has suffered the demise of Jet Airways

New Delhi: It is a busy day at Interglobe Aviation Ltd., the company that runs India's largest airline IndiGo. For the board of directors led by chairperson M Damodaran and co-founder and director Rahul Bhatia, the issues to address go well beyond finalising the June quarter results, which is expected to be robust on account of firmer airfare caused by the capacity reduction in the industry.

For the leadership, analysing the risks arising from the ongoing bitter spat between Bhatia and his estranged partner Rakesh Gangwal and steering the airline through the turbulence is of top priority. If not settled quickly, the shareholder dispute could dent investor confidence, delay decision making on key issues and invite avoidable regulatory attention. Already, the ministry of corporate affairs has asked the company for its comments on the charges of corporate governance lapse in the company raised by Gangwal in his letter earlier this month to capital market regulator Sebi. InterGlobe Aviation informed stock exchanges on Wednesday it will respond to the ministry's request for information within the prescribed time.

The Registrar of Companies (RoC) who is in charge of Companies Act compliance in the NCR region wants to assess whether the charges of governance lapses are true. For IndiGo, the biggest defence is the strong market leadership the airline has in the highly competitive air travel market which is not possible to have without sound management. The regulatory authorities, however, cannot ignore charges about lapses when it is a major shareholder who makes it. It is worth noting that the regulator is only trying to find the facts about the charges at this juncture rather than doing any probe.

The ministry is assessing whether the special rights that Bhatia’s InterGlobe Enterprises Pvt. Ltd (IGE) enjoys in running the airline on account of the shareholder agreement has in anyway led to any kind of deviation from corporate governance standards, especially on independence of the audit committee. The shareholder agreement gives IGE the power to appoint three out of the six directors of IndiGo, nominate a chairman as well as appoint a managing director and chief executive. Gangwal and his associates hold about 37% in the company, while Bhatia and his associates hold 38%. The agreement also forces Gangwal and his affiliates to vote alongside IGE Group on the appointment of directors, as per a letter that Gangwal sent to the capital markets regulator earlier this month.

It, however, has had some impact on the company's performance in the stock market. InterGlobe Aviation shares lost over 13% in value to 1354.85 a share after news came out about the shareholder dispute on 9 July. It however, partially recovered from the losses by Thursday to 1458.65. Delays in settling the dispute risks derailing the company's strategic moves to further expand.

The shareholder spat has come out at a time the company needs to focus attention on making gains in a market that has suffered the demise of another player, Jet Airways India Ltd., which is going through bankruptcy proceedings. All airlines including IndiGo have steadily been increasing their market share as Jet Airways wound down operations gradually before fully suspending service in April. If the leadership gets distracted due to infighting among shareholders, IndiGo could cede space to rivals. Analysts say that as capacity increases in the airline industry, competition is set to increase further, bringing profits under pressure.

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