Markets welcome an end to Indigo promoters’ dispute
It is indeed good news that the two founders of India’s largest and most profitable airline are all set to bury the hatchet. This is possibly in preparation to meet competition from the Tata Group once it takes over Air India next month. A statement by InterGlobe Aviation, Indigo’s parent, said it had received a joint requisition from the two founders—Rahul Bhatia and Rakesh Gangwal—calling an EGM on December 30 to consider discarding restrictive clauses that gave the two promoters the first right of refusal in case one of them wanted to sell their shares to a third party. Since the two promoters collectively own nearly 75% of the stock, the resolution will go through.
The 4% rally in InterGlobe after the EGM notice showed markets don’t like promoter disputes disrupting good businesses. The dispute first broke out in July 2019, when Gangwal wrote to the market regulator, SEBI, alleging governance issues like the execution of related-party transactions (RPTs) without calling for competitive bids. Gangwal also said he was being choked since all the powers to appoint the CEO and MD as well as the majority of the directors were concentrated in the hands of Bhatia, his co-promoter.
In a sign of maturing corporate practices, the two promoters did not let the feud turn ugly and preferred the route of arbitration. The amendment in the articles of association being proposed in the EGM is pursuant to the directions of a London Court of International Arbitration. With restrictions on stake sale out of the way, the promoters can now disentangle and one of them can exit at the market price that the company’s shares command. The airlines business is among the toughest in the world, as is apparent from the number of skeletons the industry has produced. Things turned quiet at Indigo, but the simmering dispute has taken
a toll. Though Covid is partly to blame, the airline reported its seventh straight quarterly loss this October when it notched up a net loss of Rs 1,436 crore. With promoter issues taken care of, it is expected the airline will now fly better.