The shareholder agreement between entities controlled by Rahul Bhatia and Rakesh Gangwal — the two promoters of Interglobe Aviation who are currently at loggerheads — is set to expire in October this year, and an ongoing renegotiation of the same is learnt to be at the heart of the rift. The dispute is learnt to be primarily over the disproportionate distribution of board and management appointment rights between the two promoters, sources close to the matter told The Indian Express.
As per the shareholding pattern declared by Interglobe Aviation, as of March 31, Bhatia, his family and his holding company Interglobe Enterprises held around 38 per cent stake, while Gangwal, his family and his entity held close to 37 per cent. However, as per the agreement, upon listing of the company, Interglobe Enterprises Group (Rahul Bhatia’s entity) has the right to nominate three non-independent directors, while the Rahul Gangwal Group has the right only to nominate one non-independent director. Further, Bhatia’s group is entitled to nominate the chairman, the managing director, the chief executive officer and the president of the company.
The agreement signed at the time of the company’s initial public offering in October 2015, a source said, had a term clause as per which the shareholding pact would expire automatically on the fourth anniversary of the IPO. It is learnt that the renegotiations for the new agreement have brought out the tense undercurrents at top of India’s largest airline, for which Bhatia and Gangwal have appointed separate law firms to settle the disputes.
Separate e-mail queries sent to both Bhatia and Gangwal did not elicit a response at time of going to press. In a filing to the stock exchanges, which sought clarification from the airline on the development, IndiGo said: “With regard to the aforesaid news, please note that the company is not in a position to comment on such news as it relates to the promoters of the company”.
Reports about the rift between the two founders of IndiGo caused the stock of Interglobe Aviation to take a beating, ending Thursday’s trade 8.82 per cent down from its previous close at Rs 1,466.60 on the BSE. Earlier during the day, the airline’s chief executive officer Ronojoy Dutta wrote a letter to its employees noting that the company’s growth strategy remained unchanged and firmly in place.
“I am sure that you are all aware of the press reports regarding alleged disagreements between our two promoters Mr Rahul Bhatia and Mr Rakesh Gangwal. I was to assure you that the growth strategy of the airline remains unchanged and firmly in place, and the management is fully charged by the Board to implement it. We will continue our focus on creating value for all our shareholders, our customers, our employees and the communities we serve,” Dutta wrote in the mail.
InterGlobe Aviation owns and manages IndiGo, which has around 44 per cent share in the domestic air passenger market.
As per people close to the matter, the root of this contention between the two promoters lies at IndiGo’s growth strategy and the management control resulting from that.
While Gangwal is said to favour of an aggressive approach, Bhatia is understood to be for a steady growth path. Bhatia is a former hospitality industry executive, while Gangwal, a US citizen, was a senior official at United Airlines. Those tracking the company closely indicated that most of the former United executives now at IndiGo, including the CEO Ronojoy Dutta have been handpicked by Gangwal.
Industry watchers have also indicated that the fact that both promoters have delegated their lawyers to work the dispute out shows that the conflict is unlikely to affect the airline or its operations in the immediate term. However, the longer term flight path of IndiGo will depend on which of the promoter gets the upper hand, one analyst said, adding that the tone of the management in the post-earnings conference call could be an indicator to how serious is the problem between Bhatia and Gangwal.