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IndiGo can’t fly high with feud in the cockpit | Opinion

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The co-founders of India’s No. 1 airline are engaged in a bitter feud. Their quarrel couldn’t have come at a worse time for minority shareholders of Inter Globe Aviation Ltd., the company that owns IndiGo.

Investors were just starting to enjoy the fruits of a frenetic expansion that saw the no-frills carrier, Asia’s largest, double its capacity in the three years through March. Full-cost rival Jet Airways India Ltd. tried to keep up, until it was forced to ground its last plane in April under a truckload of debt. Meanwhile, InterGlobe has put together a cash war chest — net of debt — of nearly $2 billion.

This is the time for IndiGo to be rewarding shareholders by consolidating its leadership position and filling the gap left by Jet, especially on overseas routes. Instead, the founders are busy picking fights.

Rakesh Gangwal, a former CEO of U.S. Airways Group Inc., has dashed off a letter to the Indian stock-market regulator alleging corporate-governance lapses. He says partner Rahul Bhatia, who owns 1 percentage point more than U.S.-based Gangwal’s 37% stake, is dragging IndiGo into transactions with his other businesses, which are mostly housed under Inter Globe Enterprises Ltd.(IGE Group), without adequate auditing.The airline pays rent to IGE’sreal-estate unit; the crew stays at hotels operated by Bhatia’s joint venture with Accor SA;pilots are trained at IGE’sflight simulator, a collaboration with Canada’s CAE Inc.; a Bhatia firm has also acted as a sales agent for IndiGo.

What amounted to$22 million of related-party transactions, for a carrier that took in $4 billion in annual revenue, doesn’t exactly smack of a governance scandal. Not at an airline that thrives on keeping its costs under control. Bhatia, for his part, wants to know why Gangwal is questioning the arrangement snow when he “did not raise for 13 years a whisper.” The India-based partner say she took most of the economic risk when setting up the airline.Besides, Gangwal isn’t denying entering into a shareholders’ agreement that gives Bhatia control,including the power to nominate half of the six-member board and most of the top managers.

Gangwal’s letter mentions whistle blowers.Unless those charges are serious and material, the battle looks more about monetizing a business that he never wanted any part of until a persistent Bhatia talked him into it.

Today, the co-founders can be legitimately proud of IndiGo, a rare success story in global aviation,achieved in a brutally price-competitive and fast-growing market.The problem seems to be about dividing up that success fairly.

It probably rankles billionaire Gangwal, the strategy whiz, that his37% stake is perhaps worth less than the market value of roughly $3 billion, while his money-man (former) friend’s38% stake is worth much more.(1) After all, any airline or a buyout firm willing to write that big a check would want a measure of influence over the airline’s future: That’s something only Bhatia can give.If that’s the real reason Gangwal is seeking to enlist the regulator’s help “to make necessary changes to the unusual controlling rights available to the IGE Group,”then it’s a failure of mediation.

From the shareholders’ perspective, it’s a dangerous lapse. Indians’ trust in business and business tycoons, finance and financiers, accounts and auditors has probably never been lower. Any suggestion of impropriety now can spiral out of control. No wonder the infighting dragged Inter Globe shares down nearly 11%on Wednesday, as investors braced themselves for a protracted and unpleasant legal and public-relations skirmish – much like the one that flared up at the Tata Group in 2016, after it fired then-Chairman Cyrus Mistry, who also happened to be a large shareholder.

IndiGo became No. 1 by making flights take off and land on time more often than most other large global airlines. To investors’ horror,the messiness the carrier so studiously avoided in its operations –by relying on a single type of aircraft (the narrow-bodied Airbus), deploying its fleet efficiently and growing it strategically – has finally come back to haunt it. Not at the tarmac, but in the boardroom.

(1) The total market capitalization is about $8 billion.

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Very critical situation for Vodafone in India, says CEO Nick Read

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Vodafone said its future in India could be in doubt unless the government stopped hitting operators with higher taxes and charges, after a court judgment over licence fees resulted in a €1.9 billion group loss in its first half. Chief executive officer (CEO) Nick Read said India, where Vodafone formed a joint venture with Idea Cellular in 2018, had been “a very challenging situation for a long time”, but Vodafone Idea still had 300 million customers, equating to a 30% share of the sizable market.

“Financially there’s been a heavy burden through unsupportive regulation, excessive taxes and on top of that we got the negative Supreme Court decision,” he said on Tuesday.

Vodafone had asked the government for a relief package comprising a two-year moratorium on spectrum payments, lower licence fees and taxes and the waiving of interest and penalties on the Supreme Court case, which centred on regulatory fees.

Asked if it made sense for Vodafone to remain in India without such a relief package, he said: “It’s fair to say it’s a very critical situation.”

India’s top court upheld a demand from the country’s telecoms department for $13 billion in overdue levies and interest last month, hitting the shares of both Vodafone Idea and rival Bharti Airtel.

Vodafone has clashed with Indian authorities over tax and regulatory issues ever since it entered the country with a $11 billion deal to buy 67% of Hutchison Essar in 2007.

The arrival of new entrant Reliance Jio Infocomm in 2016 added to Vodafone’s problems by sparking a brutal price war.

It responded by combining its operations with Idea Cellular, a deal that closed in 2018.

Read said Vodafone was not committing any more equity to India and the country effectively contributed zero value to the company’s share price. As a result of the ruling, it has written down the value of its stake in the joint venture to zero.

It also owns a stake in Indian tower operator Indus Towers, along with Bharti Airtel.

Vodafone’s shares were up 1.7% at 163 pence at 1040 GMT as investors focused on an upgrade to its earnings forecast rather than India.

UPGRADED FORECAST

The world’s second largest mobile operator reported improving organic revenue growth with signs of improvement in Spain and Italy and as it integrates a German cable acquisition.

It said organic service revenue rose 0.3% in the first half, as it returned to growth in the second quarter, while organic core earnings rose 1.4%.

It increased its forecast for adjusted core earnings to €14.8-15 billion from its previous forecast of €13.8-14.2 billion, but said India and lower cash flows following the sale of assets in New Zealand meant free cash flow would be “around” €5.4 billion, rather than the “at least” €5.4 billion previously forecast.

Apart from India, Read said he was pleased with progress.

“This is reflected in our return to top-line growth in the second quarter, which we expect to build upon in the second half of the year in both Europe and Africa,” he said.

Read cut Vodafone’s dividend for the first time in May after tough market conditions and a need to invest in its networks and airwaves caused him to backtrack on his pledge not to reduce the payout.

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Rupee slips below 72-mark against USD

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The Indian rupee dropped below the 72-level against the US dollar in intra-day trade on Wednesday amid growing concerns over country’s poor economic indicators. The Indian currency was trading 57 paise lower at 72.04 against the US dollar at 1548 hours.

On Monday, the local unit had closed at 71.47 against the US dollar.

Forex market was closed on Tuesday for “Guru Nanak Jayanti”.

Forex traders attribute the weakness in the forex market to weak factory output numbers and weak global cues.

Showing signs of sluggishness in the economy, industrial production shrank by 4.3 per cent in September, registering the weakest performance in seven years due to output decline in manufacturing, mining and electricity sectors, as per official data released on Monday.

According to the Central Statistics Office data, 4.3 per cent contraction is the lowest in 2011-12 series of Index of Industrial Production (IIP), which was unveiled in May 2017. The IIP had declined by 0.7 per cent in April, 2012.

Factory output, measured in terms of IIP, had expanded by 4.6 per cent in September 2018.

On the global front, investors remained concerned over uncertainty in US-China trade deal.

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Saudi Aramco takes another step toward first public offering

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Saudi Arabia’s state-owned oil giant Aramco revealed it will sell up to 0.5% of its shares to individual investors, but in a lengthy document published late Saturday it did not disclose how much of the company will be floated when it goes public on the country’s domestic exchange.

Still, the highly-anticipated sale of even just a sliver of the company is expected to make this the world’s biggest initial public offering. Saudi Aramco is the most profitable company globally, producing more than 10 million barrels of crude oil a day, or some 10% of global demand.

Despite questions over Aramco’s valuation and how much of the company will ultimately be for sale on Saudi Arabia’s Tadawul stock exchange, the company’s size and profitability has made it undeniably attractive to potential investors. Trading could begin as soon as Dec. 11, according to state-linked media.

The oil and gas company had profits of $111 billion last year, more than Apple, Royal Dutch Shell and Exxon Mobil combined.

In a roughly 650-page preliminary prospectus, Aramco said the offering period for investors will begin Nov. 17. It will close for individual investors on Nov. 28 and for institutional investors on Dec. 4. Aramco will price its shares on Dec. 5, according to the document.

The company stated its plans to pay out an annual dividend of at least $75 billion starting in 2020, but questions linger over how much Aramco is worth.

Crown Prince Mohammed bin Salman has said the company is worth some $2 trillion, but analysts estimate the value is closer to $1.5 trillion.

The kingdom’s plan to sell a small percentage of the company is part of an ambitious economic overhaul spearheaded by the crown prince to raise new streams of revenue for the oil-dependent country, particularly as oil prices struggle to reach the $75 to $80 price range per barrel analysts say is needed to balance Saudi Arabia’s budget. Brent crude closed Friday at around $62 a barrel.

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