IndiGo's holding company, InterGlobe Aviation, has applied to the Foreign Investment Promotion Board (FIPB) seeking reclassification of the equity stake held by promoter Rakesh Gangwal through Caelum Investments so that the company can have access to fresh foreign direct investment.
This has become necessary as Rakesh Gangwal's stake at present is classified as FDI even though a clutch of NRIs hold the majority stake in Caelum Investments.
According to FDI rules, foreign companies and foreign airlines are allowed to hold up to a 49 per cent stake in an Indian airline. NRIs are permitted to hold up to 100 per cent in an Indian carrier.
InterGlobe in its application to the FIPB has said the reclassification of Gangwal's stake into NRI holding would free up the FDI limit and open up possibilities for fresh induction of foreign investment in the airline as and when required.
At present, Gangwal through Caelum Investments (incorporated in Delaware, US) holds a 47.88 per cent stake in InterGlobe Aviation. Rahul Bhatia owns the remaining stake in InterGlobe Aviation.
Gangwal's holding is considered FDI even though the majority stake in Caelum is held by NRIs.
Gangwal owns 40 per cent stake in Caelum, his wife Shobha 20 per cent. The remaining shares are held by The Chinkerpoo Family Trust.
The FIPB is scheduled to consider the application on Friday. According to the proposal, Caelum will be merged into InterGlobe Aviation.
The 147,000 equity shares held by Caelum in InterGlobe Aviation will be cancelled.
In a cashless transaction InterGlobe Aviation will issue 147,000 equity shares having face value of Rs 1,000 to NRI owners of Caelum. The shares will be allotted in proportion to the voting units held by them in Caelum.
The overall NRI holding in InterGlobe will not increase. However, after the merger a part of the shareholding will be with NRIs. The scheme has been sanctioned by the Delhi High Court.
The permission from the FIPB has been sought by InterGlobe because in accordance with provisions in the Foreign Exchange Management Regulations, 2000, issue of share to NRIs is permitted upon merger of two Indian companies subject to certain conditions. Since the proposal involves the merger of a non-resident company into an Indian one, an FIPB approval is required for issuing equity shares to NRIs after the merger.
The board of InterGlobe Aviation had approved the transaction in May this year.