Axis Bank-led lenders which have exposure to the Male International Airport Development Project has written to the Maldives government that the latter is obliged to compensate the banks in case the project contract is terminated, according to an agreement signed by the Maldives government and banks. The airport is situated at the Maldivian Hulhule Island at the South western tip of India.
Last week, the government of Maldives issued a notice to terminate the joint venture firm’s – between GMR Infrastructure and Malaysia Airport Holdings Berhad – contract to develop the airport. The cost of the project was million with a debt-equity ratio of 70:30.
GMR owns 77% stake in the JV. The $511-million project with a 25 years concession period -- was terminated on the ground that there are several legal, technical and economic issues that are invalid. The main contention of the government is regarding the collection of airport development charge of $25 and insurance fee of $2 from every departing customer.
The joint venture has invested $230 million in the project of which $160 million was in debt, $30 million in equity and the remaining was met from internal accruals. GMR Infra’s exposure was $23 million. The consortium, which won the contract in June 2010, had paid upfront concession fee of $78 million.
Axis Bank and Indian Overseas Bank are the bankers to the consortium.
Banks have now written to the government reminding it of the contract. However, sources said legal action will only be contemplated if the government fails to honour the agreement. Banking industry sources said Axis Bank may have $100 million exposure.
GMR which decided to challenge the contract got a breather today with Singapore court ordering a stay to the termination. As per the contract in the project, in case of differences between various parties, the law of either Singapore or UK would apply. The Maldives government, however, said they will take control of the airport despite the court order.
