Rakesh Gangwal, the co-founder of budget carrier IndiGo, is seeking an amendment to its articles of association (AoA) that necessitates the promoters to seek each other’s permission while selling their shares, among others.
Gangwal holds around 37 per cent in InterGlobe Enterprises — the parent of IndiGo while the collective holding of Rahul Bhatia and affiliates stands at 38.23 per cent.
Gangwal has requested that an extra-ordinary general meeting (EGM) be convened to amend certain clauses of its AoA. In a filing to the bourses on Friday, IndiGo said it received a requisition on December 24, 2019 from Rakesh Gangwal, Shobha Gangwal and the Chinkerpoo Family Trust to convene an EGM to move a resolution for the amendments to the AoA of the company.
The shareholders’ agreement between the two promoters expired on the fourth anniversary of the company’s initial public offer — November 10, 2019.
Market circles feel that in this context Gangwal’s latest move may be indicating his intention to sell his stake either partially or fully.
Qatar Airways had earlier said it is interested in acquiring a stake in the budget carrier. Shares of IndiGo on Friday gained 2.10 per cent to settle at Rs 1360.95 on the development.
Right of first refusal
The Gangwal group has pointed out that the AoA of the company contained several provisions of the shareholders agreement. However, since these provisions have now expired, it is now seeking an amendment to the AoA to remove those expired provisions.
The Gangwal camp is looking to amend 16 articles of InterGlobe Aviation’s articles of association which lay down the mechanism for the stake sale by one of the partners should they wish to break away, including restrictions that confer the right of first refusal on the partner that is prepared to stay on.
Tag-along rights
These restrictions also confer tag-along rights (which permit the other partner to sell a part of his stake in an off-market deal at the same price), limit the number of shares that the non-transferring shareholder needs to buy while exercising the right of first refusal to ensure that he doesn’t breach the threshold that would trigger an open offer.
In the event that the non-transferring shareholder agrees to buy a part of the stake on sale, there is a proviso that requires the sale of the remaining shares to the off-market deal purchaser in one go and within three business days of serving notice of the transaction.
This, in effect, rules out staggered sale of the stake by the partner looking to break the business ties. If all the shares are not sold, then the unsold shares will also attract the rigour of the first right of refusal when and if the partner is able to find a buyer for the shares.
Moreover, the partner cannot sell the stake to a competitor or sell so many shares as will make it obligatory for the new shareholder to come out with an open offer without the consent of the partner who stays on.
Gangwal is unlikely to muster up the required support to pass the special resolution, which is mandatory when amending the articles of association. Special resolutions require the support of 75 per cent of the shareholders.
IndiGo disclosed that the EGM will be held on January 29. The company added that it had obtained a legal opinion after receiving a letter from Gangwal which confirmed the group’s right to requisition a meeting of the shareholders to put forth the resolution before the shareholders.
The development comes more than six months after Gangwal flagged concerns over corporate governance lapses at the company.
The differences between the promoters came to the fore in July 2019 after Gangwal sought Sebi’s intervention to address alleged corporate governance lapses at the company. Arbitration proceedings are also going overseas between the two sides.
Shares of InterGlobe, which fell early on Friday due to a spike in oil prices, climbed more than 6 per cent from their lows before settling up 2.1 per cent.
