At IndiGo, IGE says Rakesh Gangwal limited his financial risks

InterGlobe Enterprises (IGE), a promoter of IndiGo, said on Sunday that Rakesh Gangwal has always limited his financial risk in the airline and also alleged that he pushed for selling the business at difficult times.

In a bid to counter co-promoter Gangwal`s recent allegations of "collapsing" corporate governance in the company, IGE, which is owned by Rahul Bhatia, has so far issued three statements in the past week.

"Rahul Bhatia invited Gangwal, an industry professional, to join as an investor as the two had known each other for a long time. The understanding with Gangwal was that the IGE Group and Gangwal would hold just about equal equity. Gangwal wanted to limit his financial risk to no more than Rs 15 crore," IGE said in a statement isued on Sunday.

"The IGE Group would have invested more equity, but given that Gangwal did not have the appetite to invest more, IndiGo`s paid up equity capital was pegged at Rs 30 crore, the minimum required by regulations. Rakesh Gangwal Group (the RG Group) -- described as investor in the shareholders agreement -- acquired from IGE 149,950 equity shares (which represented about 50 per cent of the equity) at par value in May 2016," the statement said.

It further said that during the intitial phase of IndiGo in 2005 when conversation with Airbus for acquisition of aircraft was underway and Airbus wanted both IGE and Gangwal to give a joint undertaking of support to IndiGo, IGE and Gangwal undertook to invest in IndiGo an amount of "not less than" $50 million (which then converted to about Rs 200 crore). They further undertook to maintain that investment until the delivery of the last aircraft, the statement said. 

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

It further said: "Even more significantly, during the turbulent period of a fledgling airline, it was left to the IGE Group, as a responsible founder, to fend for IndiGo. Gangwal was missing in action at that time and there were stages where he wanted to de-risk and pushed for the business to be sold."

IGE said that even as the aggregate financial exposure of IGE, Kapil Bhatia and Rahul Bhatia was well over Rs 1,100 crore owing to the bank guarantees and personal loans they forwarded to the airline, Gangwal was in safe harbour with an equity exposure of less than Rs 15 crore, with no personal loans or guarantees or any other financial obligations for IndiGo. 

"This was a risk ratio of almost 80:1 between the IGE Group and Gangwal. The personal guarantees of Kapil Bhatia and Rahul Bhatia continued to be in force until the end of financial year 2012 as by that time IndiGo had an adequate balance sheet to support itself," the statement said.

In its previous statement, IGE had said that Gangwal`s allegations about lack of corporate governance were "much ado about nothing". Recently, the crisis at the country`s largest private carrier IndiGo deepened with the dispute between the promoters of the airline turning ugly.

The differences had earlier been presumed to be minor by many industry experts, but it now transpires that it has snowballed into a full-blown war.

Airline co-promoter and former US Airways Chief Executive and Chairman Rakesh Gangwal, who has so far remained behind the scenes, has gone on record to lodge his grievances against various issues pertaining to IndiGo. So much so that he has sought regulatory intervention from market regulator Sebi to resolve the issues.

Gangwal, along with his affiliates, hold 37 per cent stake in IndiGo while the other co-promoter Rahul Bhatia has 38 per cent equity stake.