Indigo crisis: Investors anxious as airlines’ stock crashes

Published: July 11, 2019 3:55:34 AM

The Interglobe stock crashed 17.55% in intra-day trades and closed 10.7% lower at Rs 1,397.95 on Wednesday, after the spat between the co-promoters Gangwal and Rakesh Bhatia reached the regulator.

The Securities and Exchange Board of India (Sebi) has asked the company, which runs the Indigo airline, to respond by July 19. (Representative image)The Securities and Exchange Board of India (Sebi) has asked the company, which runs the Indigo airline, to respond by July 19. (Representative image)

By Chirag Madia & Malini Bhupta

SBI Mutual Fund’s management on Wednesday met with Rakesh Gangwal, co-promoter of InterGlobe Aviation, to get a better understanding of the problems in the company which runs Indigo.

The Interglobe stock crashed 17.55% in intra-day trades and closed 10.7% lower at Rs 1,397.95 on Wednesday, after the spat between the co-promoters Gangwal and Rakesh Bhatia reached the regulator.

The volume in the counter was a high 1.3 crore shares compared to the daily average over the last six months, of 18.37 lakh shares, according to Bloomberg data.

The ownership data from BSE as of March 31, 2019, shows that foreign portfolio investors (FPIs) owned the biggest chunk of 14.98% in InterGlobe. It was not immediately known whether any of the FPIs has met with the InterGlobe management. Mutual funds and non-institutional investors held 5.03% and 4.95%. Apart from SBI MF, which holds close to 3.00% in the company, others that have a stake include ICICI Prudential MF and Kotak Mahindra MF. Investors are understandably apprehensive the operations of the airline would be affected if the differences between the promoters are not resolved soon.

Amit Tandon, founder and managing director of proxy advisory firm IIAS, said bankers and lenders could turn wary of financing the large aircraft acquisition plan coming up. “Existing lines with banks may see some contraction if lenders believe the governance issues will impact credit quality,” he said.

Tandon suggested that in general the Articles of Association should not be embedded with shareholders’ rights. “The articles of association should be cleaned up as you cannot have embedded rights in them. Others have pointed out a company of the size of InterGlobe cannot have merely six board members and that too half of them nominated by one promoter group.

JN Gupta, founder and MD of Stakeholder Empowerment Services, said it was hard to to pin the blameon any one person. “In a company where both promoters hold almost equal stakes, there’s little anyone can do till one party quits,”Gupta said.

Some corporate experts believe it might be better if one promoter sells out to the other.

The shareholder agreement between Gangwal and Bhatia, who hold 36.69% and 37.9%, respectively, expires in October but the articles of association extend beyond that.

The public spat between Bhatia and Gangwal took a turn for the worse on Tuesday with Gangwal reaching out to the regulator with a string of charges against Bhatia.The Securities and Exchange Board of India (Sebi) has asked the company, which runs the Indigo airline, to respond by July 19. In a 49-page letter to Sebi that charged Bhatia with multiple violations, Gangwal alleged Bhatia had carried out related party transactions without the approval of the audit committee, violated corporate governance regulations and also breached the code of conduct for directors and senior management.

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