Row between founders hits shares in IndiGo parent

An escalating dispute between IndiGo’s co-founders sparked falls in its parent firm’s shares on Wednesday as investors fretted about the potential impact on India’s largest airline.

Interglobe Aviation lost close to $ 1 billion in market value on concerns that the row would distract the budget carrier, which has gained from Jet Airways’ collapse.

“SpiceJet and other airlines may view this as an opportunity to strike and gain market share from the leader,” Shriram Subramanian, founder of proxy advisory firm InGovern, said.

Interglobe shares closed down 10.74% at 1398.05 rupees, while those of low-cost rival SpiceJet climbed as much as 9%, but closed up 2% on the day.

“It has already led to some loss of shareholder value. The promoter dispute may also end up with a loss of business and market leadership,” Subramanian said. “This is likely to drag on and that is the problem for minority investors.”

IndiGo co-founder Rakesh Gangwal on Tuesday alleged violations of corporate governance rules at the parent group and asked the country’s securities regulator to intervene.

The move suggested a previously reported row between Gangwal and co-founder Rahul Bhatia was escalating.

In a memo to staff seen by Reuters, IndiGo Chief Executive Ronojoy Dutta sought to allay any concerns and asked employees to remain focused on running the airline.

“Our mission, direction and growth strategy remains unchanged, and firmly in place,” Dutta said.

IndiGo was not immediately available for comment.

Analysts at Mumbai-based ICICI Securities said despite the row they maintained their “buy” rating on Interglobe’s stock, noting its strong business fundamentals.

Under Gangwal and Bhatia, IndiGo has grown rapidly since it launched flights in 2006 and now controls a near 50% share of the Indian domestic aviation market.

Asia’s most valuable budget airline by market capitalisation has also accelerated international expansion plans since Jet collapsed in April.

“I have vigorously attempted for almost a year to persuade the company to shore up its governance standards, and all my attempts have been thwarted by the IGE Group,” Gangwal said in a letter to the Securities and Exchange Board of India (SEBI), referring to Bhatia’s affiliate group.

SEBI has sought a reply from Interglobe by July 19.

Gangwal and his affiliates own nearly 37% of Interglobe, while Bhatia controls about 38%, giving both a major say.

At the centre of Gangwal’s complaint are IGE and Bhatia’s significant controlling rights over IndiGo, which he alleged allows them to carry out “questionable” transactions.

IGE can appoint three out of six directors, nominate the chairman and select the top executives, Gangwal said.