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Corporate Dec 13, 2012

Investors cheer GMR’s strategy to sue Maldives

By Firstbiz Staff

GMR seems to be winning some brownie points by feeling sorry for itself.

After investing around $511 million in the Male project, GMR claims it has been 'fooled', and 'cheated' over a supposed 'illegal component' of the contract which included Airport Development fees, and now plans on suing the Maldivian government after it was forced to hand over the Male airport to the latter.

Reuters

GMR Infrastructure is planning to seek compensation of over $800 million (Rs 4,334 crore) from the Maldivian government since its contract was cancelled abruptly, reports the Economic Times.

While the Maldivian government has termed the loss as mere lack of due diligence and 'poor PR skills' of the company, at least its Indian investors if not the government are showing some enthusiasm now that GMR seems keen on going forward with its arbitration process.

Shares of the company were trading 1.5 percent higher at Rs 18.7 on the BSE, while the Sensex was absolutely flat. The stock has fallen 5 percent ever since Maldives decided to oust GMR.

Various brokerage houses have already turned bearish on the stock since there is no clarity on how the financial liability will be taken care of by Maldives and whether GMR will be able to absorb the loss or not.

Most see potential loss in revenues and profits which could mean some pressure on the stock in the interim.

"The company's airport vertical has taken a major hit. According to information, GMR also wants to exit from Istanbul but it has not found a buyer. With four airports, GMR was flying high in its airport business and this vertical is very crucial for the company. There is a big question mark on the compensation," SP Tulsian, independent market analyst, was quoted as saying by the Business Line.

GMR has already spent over Rs 500 million on modernising and running the Male project, of which $78 million was paid upfront to the government. While the Maldives government has full rights to cancel the project, it should pay GMR. However, going by what the country has said so far, even getting a single dime out of the country could take years.

According to the ET report, GMR will discuss the compensation package with its lawyers and only then will it work out a legal strategy. Given that the airport project was the largest FDI made by a a foreign company in the island nation, it remains to be seen if Maldives can muster up a strong legal defence or whether it can somehow cough up the compensation amount.

But one thing is certain. With a GDP of only $2 billion, Maldives is in for a long drawn battle.

by Firstbiz Staff

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