The escalating feud between the Rakesh Gangwal (RG) Group and InterGlobe Enterprise (IGE) Group of Rahul Bhatia, the two promoter groups of InterGlobe Aviation Ltd., (IGAL) that runs IndiGo, resulted in the company’s shares crashing in the stock market on Wednesday.
Shares tanked by 19% to ₹1,291 during intra-day trade to its lowest since March 2019 to finally close with a loss of 10.73% at ₹1,397.75 on the BSE. The company’s market cap was wiped out by over ₹6,000 crore to ₹53,765 crore.
This forced InterGlobe Enterprises Pvt. Ltd. (IGE), the holding company of IndiGo co-founder Rahul Bhatia’s family, to clarify its stance on the alleged Related Party Transactions (RPT) entered with IGAL as levelled by the other co-founder Rakesh Gangwal in his complaint to SEBI on Tuesday.
Denying the allegations, InterGlobe Enterprises in a statement said, “The existence of RPTs was disclosed at the time of the IPO in 2015 in the public domain. Post the IPO, many of the RPTs have ceased to exist while others have been renewed on an arms’ length basis as part of the normal course of business.”
“The IGE Group has ensured that no entity of the group should take any advantage under RPTs. Without exception, IGAL has received more favourable treatment from the IGE Group entities as compared to their other customers. The materiality of the transactions for IGAL is not significant as is evident from the table above, it is only 0.53% of IGAL’s consolidated turnover for FY 2018-19,” it said. Currently the RPTs are confined to real estate, simulation training, GSA commission, and crew accommodation in Accor Hotel and the total expenses in FY19 was to the tune of ₹150.2 crore.
Defusing anxiety
The IndiGo management also stepped in to defuse the anxiety of employees.
“The issues between them will eventually get sorted out, but I want to stress that these issues have nothing to do with the airline and its functioning,” Ronojoy Dutta, CEO, IndiGo, said in a letter to employees.
“Our mission, direction and growth strategy remains unchanged, and firmly in place. As such, it is very important that we all remain focussed on running a high performance airline,” he said. Mr. Dutta added, “Absolutely nothing has really changed for any of us, I will just go about doing my job to the very best of my abilities, and I know I can count on you to do the same.”
Even as the sharp differences between the two promoters is playing out in the open, material submitted by Mr. Gangwal to the SEBI bring to the fore the acrimony that has been building up between the two factions for the past one year.
Sample this letter to the board on June 12, 2019, by Mr. Bhatia on Mr. Gangwal.
“So, here is a man who took full advantage of the situation and the opportunity offered to him 14 years ago, when he was generously allotted 50% equity; did not mind that the IGE Group was taking the entire economic risk, which at peak exposure [between redeemable preference shares, unsecured loans, and personal guarantees] was in excess of ₹1,100 crore [almost sixfold the IGE Group’s contractual obligation of ₹200 crore in the understanding with Mr. Gangwal]; happily agreed to the fundamental proposition that the IGE Group will have control; obliged himself to support the IGE Group in maintaining control through a voting rights agreement embedded in the SHA and in the AoA of the company.”
Mr. Bhatia’s letter said, “With great delight [since he was going to make a ton of money] he actively participated in the IPO — at which stage he once again agreed that the IGE Group would retain control — a disclosure made in the prospectus; did not raise for 13 years a whisper against any RPTs; year after year, signed and approved annual accounts without raising any objections; now at his conveniences dismisses as ‘unusual’ the controlling rights of the IGE Group which are part of the fundamental architecture on which the company was founded; shied away from taking a position on the board of a start-up being scared of liability in a highly regulated sector; now claims to be a guardian of corporate governance. Alternate facts are easy to construct. Truth hurts.”
Mr. Bhatia, in another letter to the board wrote,“It seems the real objective of the RG Group is not to investigate RPT but to malign the image of the IGE Group, and to destabilize the management, and cause enough confusion and obfuscation in order to grab management rights of the company. All this in direct contravention of the SHA and the AoA. It seeks to do so by firing a first shot of this frivolous and defamatory requisition with an attempt to mislead the shareholders.”
He said Mr. Gangwal’s “campaign” was nothing more than a publicity seeking device to attempt to tarnish the reputation of the IGE Group and to position the RG Group as a saviour of the company.
“Mr. Gangwal’s angst lies elsewhere, the refusal of the IGE Group to succumb to his unreasonable demands to dilute the IGE Group’s controlling rights; and the hurt ego of Mr. Gangwal on realising that upon his refusal to lend his hand in the company’s ongoing negotiations with Original Equipment Manufacturers (OEMs), the company had proceeded to make alternate arrangements for the purpose,” the letter said.
Stating that Mr. Gangwal attempted to hold the company’s business to ransom by purposely delaying the ongoing negotiations with OEMs, Mr. Bhatia said it paved the way for the company to institutionalise an area of operations which Mr. Gangwal had kept as his exclusive preserve.
“After the flop show of his first similar requisition made in January 2019, Mr. Gangwal comes back with the second act of his theatrical production. The script of the play stands exposed even more starkly as Mr. Gangwal makes innocent fig leaf statements of standing by and honouring the SHA and being a crusader of corporate governance,” the letter added.
