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Bad Air

10 Jul 2019 By Una Galani

India’s favourite airline is flying into governance trouble. InterGlobe Aviation, or IndiGo, has grown into the country’s largest, most profitable carrier, accounting for about half the market. It has soared at a time when others, like practically defunct Jet Airways and loss-making Air India, have been dragged down by rock-bottom ticket prices. But the $9 billion outfit is now under a cloud of its own, as its founders spar over an old shareholder agreement handing one of them outsize control. It looks like a relic of bad governance past.

IndiGo shares lost as much as a fifth of their value on Wednesday, after the publication of lengthy bitter, conflicting letters from top owners Rakesh Gangwal and Rahul Bhatia. Alongside affiliates, they hold 36% and 38% of the carrier, respectively. However, a pact, in place in various forms since the company’s inception, gives Bhatia’s bloc the right to appoint half the directors, the CEO, and to nominate the chairman, radically skewing the balance of power.

That’s causing friction as IndiGo expands at a blistering pace, flying abroad and placing multibillion-dollar aircraft orders. Gangwal wants the securities regulator to step in over related party transactions. He says the board backed by his co-founder has also refused an extraordinary general meeting, and is flouting market rules by designating a chairman nominated by a top shareholder as independent. Bhatia has previously denied wrongdoing and claims his partner is trying to force through changes to their original deal.

Perhaps so. Either way, a wider overhaul is overdue. The IndiGo pact is an egregious example of the type of agreements that the regulator should purge from listed companies, says IiAS, one of India’s top proxy advisers. Disgraced tycoons like beer baron Vijay Mallya have used similar deals to hold onto the top job for much longer than is in the interests of shareholders.

A clean-up now would be timely, given the market watchdog has just approved strict new rules to allow companies with differential voting rights to list, making such contracts outdated. Although dual-class options are currently aimed at technology companies, the regulator requires shares with superior voting rights to convert into ordinary ones within five years. That suggests any corporate agreements that indefinitely give one shareholder more rights over another require a rethink.


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