IndiGo row intensifies: Bhatia Group says Gangwal was keen to de-risk, pushed for sale

The feud between the two co-promoters of IndiGo Airlines, Rakesh Gangwal and Rahul Bhatia, escalated on Sunday with the latter’s InterGlobe Enterprise (IGE) again hitting out at Gangwal, claiming he was often “missing in action”. 

The issue could come to a head the coming week around IndiGo’s board meeting, the time and venue for which are yet to be finalised. There is also no clarity at the moment on whether Gangwal will attend the meeting in person or through video conferencing.

IGE said in a statement today that there were periods during IndiGo’s early days when Gangwal wanted to de-risk and pushed for the business to be sold. It was left to IGE, as a “responsible founder”, to fend for IndiGo, said the firm.

Personal loans

IGE claimed it continued to support the fledgeling airline without diluting Gangwal’s potential upside. Rahul Bhatia and his father Kapil Bhatia extended personal loans to IndiGo and personal guarantees to banks for the airline’s diverse financing needs such as pre-delivery payments, aircraft acquisition and working capital requirements, it added.

  The statement further said that from personal guarantees of ₹143 crore in FY06, the aggregate financial exposure of IGE, Rahul and Kapil Bhatia to IndiGo was well over ₹1,100 crore (consisting of equity, non-convertible preference shares, or NCPS, and guarantees) by FY10.

Gangwal, meanwhile, “was in safe harbour with equity exposure of less than ₹15 crore, with no personal loans or guarantees or any other financial obligations for IndiGo”. The risk ratio was almost 80:1 between the IGE Group and Gangwal, the statement said.

Kapil and Rahul Bhatia’s personal guarantees continued to be in force till the end of FY12; by that time, IndiGo had an adequate balance-sheet to support itself, the statement added.

Maintaining that it was on the “insistence of Gangwal that IndiGo was taken public in 2015,” the statement said: “Right from inception, the arrangement between IGE and Gangwal was transparent. While each was to hold equal ownership, the IGE Group was to take the financial risk.”

Initial capital

In April 2004, IndiGo received a no-objection certificate from the Civil Aviation Ministry to set up the airline, and by FY06, IGE had invested ₹30 crore in fully paid-up equity and ₹69 crore via NCPS.

“At that time, ₹30 crore in paid-up equity was the threshold for a licence to operate an airline in India. Bhatia invited Gangwal, an industry professional, to join as an investor as the two had known each other for a long time,” the statement said, adding that the understanding with Gangwal was that IGE and Gangwal would hold roughly equal equity. “Gangwal wanted to limit his financial risk to no more than ₹15 crore. While IGE would have invested more, given that Gangwal did not have the appetite to invest more, IndiGo’s paid-up equity capital was pegged at ₹30 crore, the minimum required by regulations.”

Airbus requirement

The statement said Airbus required that Gangwal and IGE, the newly formed but unknown entity, undertake to invest in IndiGo an amount “not less than” $50 million (about ₹200 crore then). 

“As Gangwal was not going to take any further financial risk or obligation, IGE singly (though the undertaking to Airbus was a joint one) took the obligation to further invest up to ₹110 crore in IndiGo so that taken together with the then existing investment of ₹99 crore, the conditions placed by Airbus could be met,” the statement claimed.

 While calls made to Gangwal remained unanswered, he has in the past maintained that his fight is about corporate governance in the company. IndiGo is being run akin to a paan ki dukaan , he has claimed.

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