GMR's lenders may seek $175 mn compensation from Maldives

GMR’s lenders Axis Bank and Indian Overseas Bank (IOB) are likely to seek $175 million in compensation, as part of an over $800 million compensation package sought by GMR, from the Maldives government for terminating the Indian company’s contract to build and operate the Ibrahim Nassir International Airport in Male, sources told NDTV.

Lenders, led by Axis Bank, are also likely to file separately for legal arbitration proceedings to recover their dues, the sources added.

Axis Bank and IOB have an exposure of $160 million to the project, according to the sources.

GMR Airports, in a letter yesterday to the Maldives government, sought compensation on the amount spent by them on the airport, the returns on equity that was to accrue from the project along with compensation for damages incurred due to the cancellation of the contract, the sources said.

Under a separate contract signed for the Male airport, the lenders have direct recourse to Maldives Airport Company Limited (MACL). Although the Maldives government has guaranteed the loans extended to the project, the banks will be at risk should GMR not service interest on the loan, according to analysts, as arbitration proceedings are expected to continue over next six months to even a year.

Axis Bank and IOB may also have to write off the loan from their books, analysts observed. However, sources said the Indian infrastructure company has enough funds in the banks' escrow account for any eventuality. An escrow account, which prevents a default in loan obligations by a company, ensures that funds received by a company cannot be accessed by it but goes directly to the lenders.

GMR was unceremoniously ousted from the airport project when the new Maldivian government abruptly terminated the contract on November 27 and was given time till December 7 to hand over airport operations to MACL, taking India by surprise.

The MACL took over operations from GMR on December 7, 2012, after the Singapore Supreme Court ruled that the Maldives government has the authority to reclaim the airport from GMR.

In 2010, a GMR-led consortium won the right to build and operate the airport. The deal was signed during the regime of the previous government headed by Mohamed Nasheed. But after the regime change in February, GMR had been facing an uphill task.

The current government in Male headed by President Mohamed Waheed, which is under pressure from its coalition partners, says the contract was signed under "dubious" conditions and was "void", a charge emphatically denied by the Indian firm.

The root of the problem goes back to when the largest foreign investment contract was signed under ex-President Nasheed's regime in 2010. GMR and Malaysia Holdings won the $511 million (Rs 2,768 crore) contract to modernise and run the airport for 25 years.

A local court then struck down an Airport Development Cost (ADC) of $25 per departing passenger, saying taxes could not be imposed unless cleared by the country’s parliament. GMR and Malaysia also offered a compromise solution of $27 per departing foreigner, excluding all Maldivian nationals. But, that has not been accepted.

To make up for the shortfall under the agreed contract, then president Nasheed allowed GMR to receive those fees from revenue owed to the government. Soon, hardline parties, then in the opposition and now in the ruling coalition, were out on the streets. The regime changed, and the crescendo culminated in the subsequent political and legal developments that left GMR on the brink of exiting the contract.