GMR Infrastructure Ltd. (GMRI), operator of the Maldives’ biggest airport, fell the most in a week in Mumbai after the island-nation canceled the Indian company’s contract to run the facility.
GMR shares dropped 1.4 percent, the most since Nov. 22, to close at 17.70 rupees, after slumping to the lowest level since their August 2006 debut. The stock has fallen 16 percent this year, compared with a 29 percent gain for the S&P CNX 500 Index. The market was closed for a holiday yesterday.
Maldives Airports Co. will take over the operations of the Male International Airport within seven days, Shaheema Hussain, its company secretary, said. GMR, which runs India’s biggest airport in New Delhi, and its partner had planned to spend about $510 million to upgrade the Male facility as the Bangalore-based company seeks to boost overseas business.
“If there is no compensation, it’ll be a big loss for GMR,” said Amit Srivastava, a Mumbai-based analyst at Nirmal Bang Institutional Equities. “It was a good project, but it looks like it’s going to turn into a long-drawn legal battle.”
The agreement provides for Maldives Airports to pay a compensation of $3.5 million to GMR over three years, Masood Imad, a spokesman for President Mohamed Waheed, said in a phone interview today from Male, the Maldives capital. The state-owned airport operator approached a Singapore court for arbitration and to establish the actual compensation amount, he said.
The cancellation was “unilateral and completely irrational,” GMR, controlled by billionaire G.M. Rao, said in a Nov. 27 statement, adding it will challenge the move. The decision to annul the contract was based on consultations with legal experts in the U.K. and Singapore, Maldives Airports’ Hussain said in a statement yesterday.
The project was awarded to GMR and Malaysia Airports Holdings Bhd. in 2010 by then-Prime Minister Mohamed Nasheed, who was ousted in February. The contract never received the necessary approval from parliament and was signed under “dubious circumstances,” Imad said yesterday. Waheed took power after Nasheed resigned.
Malaysia Airports (MAHB), which owns 23 percent of GMR Male International Airport Pvt, is studying its legal position on the notice from the Maldives government, the company said in a statement yesterday. The company said it invested a total of $6.9 million in the equity of the venture and has accounted for about $13.2 million of associate profits.
India said the decision to scrap the contract “sends a very negative signal to foreign investors” and the nation is “prepared to take all necessary measures to ensure the safety and security of its interests,” according to a statement from the Ministry of External Affairs on Nov. 27.
GMR Infrastructure boosted its share of overseas sales to 26 percent in the fiscal year ended in March, from 4 percent three years before, according to data compiled by Bloomberg. The company and its partners also run the Sabiha Gokcen International Airport in Istanbul.
The Maldives, a group of 1,190 coral islands with a population of about 400,000 people, is located southwest of India. About 198 of the islands, spread across 900 kilometers (559 miles), are inhabited.
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