Protracted litigation sets bad precedent, says Bid Services' Rory Mackey

In a Q&A, Rory Mackey, says India's long-drawn litigious process could impact one of its key infra assets and doesn't set a good precedent for the country as the preferred FDI

South Africa's Bidvest, which decided to sell its stake in Mumbai International Airport Ltd (MIAL) 18 months ago, has not been able to close the transaction due to litigation by partner GVK on right of first refusal (RoFR). Rory Mackey, director of Bid Services Division Mauritius, a Bidvest investment arm, tells Dev Chatterjee from Johannesburg, that this long-drawn litigious process doesn’t set a good precedent for the country as a preferred FDI (foreign direct investment) destination. Edited excerpts:

You have been trying to sell stake in MIAL for some time. But the process hasn’t been smooth. What went wrong?

We are an investor in MIAL since 2006, and put together the consortium with Airports Company South Africa (ACSA) and GVK to bid for Mumbai airport. Initially, our stake was 27 per cent, ACSA held 10 per cent, GVK held 37 per cent, and the Airports Authority of India (AAI) held the rest. In 2011, Bidvest sold part of its stake to GVK.

As our stake went down to 13.5 per cent, we thought the investment was non-core, and started the process of stake sale. We appointed Rothschild in 2017 to find a buyer. We first reached out to GVK and ACSA, who expressed reluctance to acquire our stake. Then, Rothschild identified Adani and, in January 2019, knowing their serious intent, we first sent a notice to GVK. We were taken aback when GVK moved courts against our stake sale. 

What was GVK's stand as they did enjoy the RoFR?

We issued a notice to GVK in January 2019 on the same lines as in 2011. But this time, GVK raised a technical issue and sought more details. We re-issued the notice in March 2019, giving them 30 days more to exercise their option. GVK agreed to exercise their RoFR, but were unable to complete the transaction in 30 days. Subsequently, GVK initiated litigation proceedings in the Delhi High Court, and later initiated arbitration proceedings.

Did you initiate talks with GVK… you are partners for over 14 years?

GVK had 30 days to buy our shares, after which the right went to AAI. GVK claims its period to buy the shares is extended to include the time required to get approvals. But GVK’s stand is contrary to the terms of MIAL shareholders’ agreement. In any case, we had made applications to the lenders as well as AAI, but were told the applications had to be made by MIAL. As GVK is the controlling shareholder of MIAL, it never made these applications.

In July 2019, the Delhi HC ruled that GVK had shown no seriousness to buy our shares. However, on an appeal, the issue was referred to an arbitral tribunal. The matter is sub judice. This costly, protracted litigation has been thrusted on us. This kind of litigation is not good for India as a preferred destination of FDI.

Why do you think GVK is unable to complete the transaction?

Their actions post opting to exercise their RoFR, made it clear they did not have the funds. Six months after our offer was made, they announced a proposed investment by a consortium led by ADIA, PSP, and NIIF in the GVK airport holding company, which will partly be used to buy our shares. It appears that GVK is trying to buy shares from us at a lower valuation and then sell these to its investors at a higher valuation.

Have you reached out to other investors of GVK holding company?

We have put the investors on notice and are evaluating our options. The fact is, we served our RoFR notice originally in January 2019; there were no investors at that point of time. Even after 18 months they have not been able to complete the transaction.

Do you think this litigation would impact the Navi Mumbai airport project that is stalled?

MIAL, with appropriate support from its shareholders, has the financial means to complete the project despite the impact of Covid-19 pandemic. However, it is the financial position of GVK, MIAL’s majority shareholder, that is precarious. I sincerely hope this will not affect the execution of the project. The value of the MIAL also derives from Navi Mumbai airport project and MIAL must make sure that the project is completed in time.

Is the Adani group still interested in MIAL taking into account the disruption caused by Covid-19?

They continue to be interested in MIAL and are honouring the share-purchase agreement with us. After Covid-19, air travel will get restored within a few months. MIAL will be clearly the flagship asset of the Indian airport sector. We have a contract with Adani and we will do what is necessary in spite of the high legal costs.

You met government officials on the exit plan. What was the response?

I travelled to Delhi in December to meet with AAI officials and have written to the Ministry of Civil Aviation. We hope they will help settle this at the earliest. We have been patient international investors in one of India’s most important national assets for over 14 years and have had a good experience so far.