Rahul Bhatia-owned IGE may back Rakesh Gangwal on exit norm relaxation

Topics IndiGo

Rahul Bhatia-owned InterGlobe Enterprises (IGE) is likely to vote in favour of the resolutions proposed by co-promoter Rakesh Gangwal, at the extraordinary general meeting (EGM) on IndiGo on  January 29. Support from Bhatia, who owns around 38 per cent in the company, is crucial for the resolutions to pass because they require 75 per cent of shareholder support.

The resolutions seek to relax rules on the sale and purchase of shares by its main shareholders, making it easier for the promoters to raise or cut stake in the company. 

The Bhatia family and IGE together own 37.89 per cent, while Gangwal, his wife, and a trust hold 36.97 per cent.

Among the 16 clauses Gangwal intends to remove are restrictions that confer the right of first refusal on the partner that is prepared to stay on in the event of a stake sale by the other partner; a clause that prevents either of the co-founders from buying publicly listed shares of the company, potentially triggering an open offer for the rest of the shares; and one that prevents staggered sale by a partner.

A person aware of the matter said the IGE group had deliberations with lawyers on the proposed resolutions and felt that despite relaxing the rules on selling or acquiring shares, Bhatia would have controlling powers in the company and that would prevent any hostile takeover attempt.

Among the critical rights that IGE enjoys are the ones to appoint managing director, chief executive officer, and president of the company, and induct five of the 10 directors to the company’s board.

The rights will exist even after the expiry of the bilateral shareholders’ agreement between Bhatia and Gangwal because these are embedded in the Articles of Association of the company.

The Gangwal family had pointed out in its notice that the EGM was necessary to remove the restrictive clauses of share transfer.

“Even in the event of Gangwal trying to increase or decrease his shareholding, there is little change to the control of the company, which will stay with Bhatia. No new shareholder will come in without Bhatia’s approval because he enjoys critical powers in the management of the company. 

Any new shareholder will play second fiddle to him,” the person mentioned above said. Experts tracking the company said the IGE group willing to support the resolutions was a positive sign because it signalled there it was a sign of a solution to the promoter feud, which has dragged down the company’s stock.

“It is a good sign for investors. The resolution having the IGE group’s support means that the promoters have mutually discussed the issue and Bhatia is willing to give an opportunity to Gangwal for cashing out. Considering that there is little chance of a hostile takeover, it is a positive move,” said Sriram Subramaniam, head of InGovern, a shareholder advisory firm. 

Though Gangwal in the past had said he did not want to dilute his stake in the company, over the past one year, since the feud between the promoters broke out, he, once integral to IndiGo’s operations, has not been involved in the company’s affairs.

There have been changes in key management positions with some expats leaving the company and old IndiGo hands close to Bhatia being reappointed. For instance, Rohit Philip, former chief financial officer brought in by Gangwal, quit. 

Last week, Sanjay Kumar, former chief commercial officer of IndiGo who left to join AirAsia India, was reappointed chief strategy and revenue officer.

Kumar has been given key portfolios like domestic network planning, sales, and revenue management. Queries to Gangwal didn’t elicit any response. After falling close to 30 per cent since the feud broke out, IndiGo’s stock has rebounded after the announcement of the EGM and has gained close to 10 per cent in the year-to-date period.

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