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Last Updated : Jul 10, 2019 04:47 PM IST | Source:

IndiGo share price crashes 11% as rift between promoters reaches SEBI; Citi retains 'sell' call

Credit Suisse said the dispute hasn't had an operational impact so far but can't rule one out

Moneycontrol News @moneycontrolcom
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Shares of InterGlobe Aviation, the operator of budget airline IndiGo, fell more than 17 percent intraday on July 10 after differences between two promoters Rahul Bhatia and Rakesh Gangwal reached the market regulator.

The stock closed at Rs 1,397.75 on the BSE, down 10.73 percent on the BSE.

Securities and Exchange Board of India (SEBI) on July 9 asked the Board of Directors of InterGlobe Aviation to respond to a letter written by Rakesh Gangwal, which sought regulatory intervention on his alleged grievances. The board has time till July 19 to respond to Gangwal's letter.


The rift between the company's promoters has been making the headlines for a while now.

Rakesh Gangwal Group sent a letter to SEBI alleging lack of compliance with corporate governance norms, global brokerage Credit Suisse said, adding the dispute between Rakesh Gangwal and InterGlobe Enterprises has a potential of lingering and becoming a significant headwind.

The investment firm further said the dispute hasn't had an operational impact so far but can't rule one out.

While reiterating sell call on InterGlobe Aviation, Citi said, "With conflict between promoters getting public, we do not envisage settlement anytime soon. Uncertainty regarding the final resolution could cause weakness in the stock."

In an interview to CNBC-TV18, Vikas Khemani, Founder at Carnelian Capital Advisors LLP also advised investors to stay away from IndiGo until boardroom battle doesn't subside.

Rakesh Gangwal and Shobha Gangwal hold 23.09 percent stake in InterGlobe Aviation. The Chinkerpoo Family Trust (where trustees are Shobha Gangwal & JP Morgan Trust Company of Delaware) hold 13.60 percent stake.

On June 25, in an interview to CNBC-TV18, IndiGo CEO Ronojoy Dutta said the differences between Rahul Bhatia and Rakesh Gangwal were over related party transactions (RPTs).

The differences are specifically connected to the transactions between IndiGo, and other units of InterGlobe Enterprises (IGE), the holding company of Rahul Bhatia's business empire.

The letter by Gangwal, dated July 8, stated that Bhatia has "unusual rights" over IndiGo due to the shareholders’ agreement between them. These controlling rights give IGE Group, a minority shareholder, significant influence over the decisions of IndiGo.

“I hadn't contemplated that over the years. Bhatia would start building an ecosystem of other companies that would enter into dozens of related party transactions with IndiGo. We are not against RPTs as long as proper checks and balances exist and such RPTs are in the best interest of the company,” stated the letter.

Gangwal, in his letter, provided some alleged events, which he felt was “collapsing corporate governance standards at IndiGo.”

In a letter written by Bhatia on June 12, he said Gangwal's ego was hurt as the company proceeded to make alternate arrangements for original equipment manufacturers (OEMs).

He also alleged that the Rahul Gangwal group wanted to relieve itself from its obligations under the shareholders' agreement and articles of association (AoA) as Gangwal is scared of liability in a highly regulated sector, and that the real agenda of RG group is to dilute, diminish controlling rights of IGE group.

Bhatia also alleged that Gangwal did not raise any objections for 13 years against any RPTs, and had also happily agreed to fundamental proposition that IGE group will have control, as Gangwal did not mind that IGE group was taking the entire economic risk, and that year after year, he signed and approved the annual account statements without raising any objections.

IndiGo itself is under the umbrella of InterGlobe Aviation, one of the units of InterGlobe Enterprises. Apart from aviation, the Group also has interests in hospitality, airline management, travel commerce, advanced pilot training, aircraft maintenance engineering and real estate.

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First Published on Jul 10, 2019 10:22 am
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