Male setback could take severe toll on GMR's bottom line

Last Updated: Wed, Nov 28, 2012 19:20 hrs

With the Maldives government giving just seven days to the GMR Infrastructure-led consortium to hand back an airport it was upgrading in Male after cancelling the concession agreement, the $240 million that GMR has invested so far in the project is at stake.

Though the equity contribution from the consortium is $30 million, the company has drawn as much as $90 million in debt from Axis Bank and Indian Overseas Bank.

The remaining $120 million worth of investment has been made through internal accruals from the operations of the airport. GMR has 77 per cent stake in this project, while Malaysian Airports holds the rest. Thus from the GMR Infrastructure perspective, the equity exposure is $23 million. 

Maldives has not been the only trouble spot for Indian industry in recent months. Here are a few others:
  • Bolivia: Jindal Steel & Power cancelled a $2.1-billion contract for an iron ore mine
  • Zambia: Vedanta Resources faced labour unrest and now faces the prospect of a massive increase in wages
  • Zimbabwe: The Essar Group had to re-negotiate a deal for a government-owned steel company
  • Indonesia: The ventures of several groups, including Tata, GMR, Adani and Reliance ADAG face uncertainty after a government clampdown on coal exports

“This is an important project for us and the Maldives government cannot take such a unilateral decision. We are left with no option but to take legal recourse and we should be proceeding with this in Singapore. We haven’t yet thought about the losses we will suffer due to this setback but hopefully, we should be back with the project at the earliest,” a GMR Group spokesperson said.

With this setback, till a decision at the courts in Singapore, GMR Infrastructure would be saddled with another idle asset, expected to take further toll on its bottom line, in the red for the past few quarters.

The net loss for the first half of the current financial year has more than doubled to Rs 274 crore, as it was left with idle assets in power projects due to non-availability of gas, and was still coming to terms with accumulated losses from its flagship Delhi airport project.

The Male airport earned revenue of Rs 660 crore and contributed around 13 per cent to the top line of GMR Infrastructure, and around 23 per cent to the airports vertical.

The airports vertical, a bouquet of four projects, earned 23 per cent of the total revenue of around Rs 5,000 crore during the first half of the current financial year.

Another key aspect of the Male airport operations is that as much as 70 per cent comes from fuel sales, and it is a low-margin business.

Analysts who have been tracking the company, however, indicated that impact of this move at the group level will be minimal.

“The weightage we have for this project is Rs 1 a share and at the most, the loss will be at that level on the share price,” an analyst at a global brokerage said.

Depending on how the legal steps will be taken, GMR should be asking back for the amount invested and will have to press for an additional severance payout as well if GMR loses out,”

GMR Infrastructure, by the end of the first half of this financial year, was under a debt of Rs 35,000 crore.

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