End of battle? Rakesh Gangwal quits IndiGo board, to reduce stake

After years of dispute between the IndiGo promoters, co-founder Rakesh Gangwal has stepped down from the airline’s board. While announcing his decision to reduce stake in the company over the next five years, Gangwal has hinted at a return to the board sometime in future.

Gangwal controls 36.6 per cent stake in InterGlobe Aviation, which owns and operates IndiGo. His stake is valued at over Rs 29,895 crore as per the closing share price on Friday. The other promoter Rahul Bhatia owns 38.18 per cent in the company.

A former president of US Airways, Gangwal had teamed up with Bhatia of InterGlobe Enterprises to launch IndiGo in 2005. The two promoters fell apart in 2019 on allegations of governance lapses resulting in an inquiry by the Securities and Exchange Board of India (Sebi) and an arbitration.

Gangwal’s announcement comes barely two weeks after the board's unanimous decision to appoint Bhatia as the managing director of the company.

"I have been a long-term shareholder in the company for more than 15 years and it's only natural to someday think about diversifying one's holdings. Accordingly, my current intention is to slowly reduce my equity stake in the company over the next five plus years. While new investors should benefit from the potential future growth in the company's share price, a gradual reduction of my stake should also allow me to benefit from some of the upside,” Gangwal wrote in his letter to the board.

He said he was stepping down immediately as he did not want to hold access to unpublished price sensitive information while reducing his stake in the company.

“After considerable thought, I see only one clear path to address the issue. Regrettably and effective immediately I am stepping off the board…Sometime in future, I shall consider participating again as a board member,” Gangwal wrote.

The promoters modified the articles of association to scrap the clause which gave them the right of first refusal over each other’s shares. The amendment was made following an order from the London Court of International Arbitration and passed in a shareholders’ meeting last December.

“This move was expected and should bring the feud between the promoters to an end. It is likely that Rakesh Gangwal will seek declassification as a promoter. His large shareholding will have to be sold through bulk deals over a period of time,” said Shriram Subramanian, managing director and founder of InGovern Research.

As per current regulations, however, a promoter can seek a reclassification as a public shareholder if his/her equity is below 10 per cent. Also under the Companies Act, shareholders who hold 10 per cent of company stock can requisition an extra-ordinary general meeting. In any case, Gangwal would require Bhatia’s support in case he wishes to rejoin the board.

Stock analysts said Gangwal’s announcement will keep the company’s stock price under pressure. “If the market is aware that such a bulk dilution will happen over a mid-term period, the share price will be under pressure as there will always be opportunity to accumulate stock,” an analyst said.

“Gangwal was instrumental in negotiating the initial 100 aircraft order from Airbus and laying the foundation of cost discipline in the airline. After their 2019 dispute, Bhatia managed to appoint all senior positions in the airline and he himself will be in control as managing director,’’ said Captain Shakti Lumba, former head of operations of IndiGo. He added, ‘’I just hope he refrains from micromanaging the airline as that will be the beginning of the end.”