IndiGo’s shares crash to a new low after a promoter alleges the other of governance violations

• The country’s largest airline IndiGo’s shares crashed 10.7% to ₹ 1,397 on Wednesday’s closing.
  
• Gangwal, one of the co-founders of IndiGo, wrote to the markets regulator SEBI seeking intervention on curbing possible governance violations by Bhatia.
  
• As per Gangwal’s allegations, Bhatia’s InterGlobe Enterprises (IGE) unduly has received benefits from faulty transactions which had violated company norms.
  

The country’s largest airline IndiGo’s shares crashed 10.7% to ₹ 1,397 on Wednesday’s closing, thanks to the very public fight between its two promoters--Rahul Bhatia and Rakesh Gangwal. It also touched lower circuit and the volumes also swelled probably due to large number of people selling the stock.

Gangwal, one of the co-founders of IndiGo, wrote to the markets regulator SEBI seeking intervention on curbing possible governance violations by Bhatia, a stock exchange notification said.

As per Gangwal’s allegations, Bhatia’s InterGlobe Enterprises (IGE) unduly has received benefits from faulty transactions which had violated company norms. IGE is the parent company of IndiGo which also has hospitality, flight training and other aviation related businesses.

The friends-turned-partners-turned-foes had joined hands in 2005 to form IndiGo airlines. Now, they own almost equal stake in the company, making it a long and tough fight.

Bhatia and his family own 38% of the IndiGo shares while Gangwal had 37% shareholding. Bhatia however has controlling rights of the company and also a greater say in decision making, which includes appointing senior company management.

The deal that drifted them apart

A drift developed between the promoters after the company struck a $20 billion deal with US based CFM international for LEAP-1A engines in June. The engines are to be used in Indigo’s future fleet of 280 Airbus 320 and 321 aeroplanes.

The deal was finalised after many flight disruptions were reported in the Pratt and Whitney engines, which it had been using since inception.

“This was a huge change. Pratt and Whitney was supplying the engines since start of Indigo. Of course, P&W engines had major problems with the Neos,” said a senior executive from the aviation industry.

Hurt Egos

In June, Gangawal sought a requisition for an extraordinary general meeting (EGM) to highlight governance issues. However, Bhatia alleged that his partners wants him to dilute his rights.

“The genesis of Mr. Gangwal’s angst lies elsewhere - the refusal of the IGE Group to succumb to his demands to dilute the IGE Group’s controlling rights,” Bhatia said.

He added that, “Gangwal’s ego was hurt on realizing that upon his refusal to lend in the company’s ongoing negotiations with Original Equipment manufacturers (OEMs), the company had proceeded to make alternate arrangements for the purpose.”