What does one do if you have invested hours of management time and effort, $240 million, hired several employees and relocated your own employees to a foreign country — to find the carpet pulled from under your feet?
That is precisely the situation in which GMR’s top management finds itself in the $500-million GMR-Male airport venture. Ever since the government changed in Maldives, the new regime has been systematically reversing key decisions taken by the previous government; the airport being one such decision.
In a week that went like a yo-yo for the GMR top brass, it appeared for a while that the Singapore high court’s (GMR had moved for arbitration in Singapore) ruling would ensure that the airport remained in GMR’s hands.
The Indian government also threw its weight behind the Bangalore-headquartered infrastructure company in the early part of the week, only to relent in the latter half. That the Indian government will not let the matter escalate into a diplomatic row is quite evident.
|20% of the group’s airport revenues come from the Male project|
On Thursday, 6 December, GMR’s efforts to retain the facility suffered a further setback as the Singapore Court of Appeals over-ruled the judgment of a lower court on Tuesday, and ruled in favour of the Male government taking back the airport.
With the new ruling, sources were of the view that the Indian government will also ease the pressure on the Male government. Because, if despite the pressure the airport is taken over on the night of 7 December (as we go to press), as the new regime has declared its intention to, the superpower that India is in the region will face a diplomatic embarassment.
Faced with this situation, GMR’s top brass has been trying to decide the minimum level of compensation (the company has given a figure of $240 million for the investment it has made so far); whether it has any other legal option; and whether it makes better sense to cut one’s losses and go home. In any case, the prospect of running, building and managing an airport facility in a hostile environment is not an attractive one.
Was this kind of unilateral action not considered at the time of signing the contract? It appears that the contract had only ‘customary’ termination clauses in case of default by either party; but nothing was in place in the contract for this kind of a move.
However, even with a high level of compensation, the loss of the Maldives airport will hit the group’s revenues and bottom line as 20 per cent of the group’s airport revenues come from this airport. This figure was expected to increase as the project progressed to later phases.
A detailed email query to GMR by Businessworld remained largely unanswered as the management claimed to be mulling over many of the issues raised. They did, however, say that the level of compensation — which is perhaps what it would now all boil down to — remained ‘uncapped’, partly due to the fact that several sub-contracts would also have to be terminated.
The bitter end of the group’s Maldives venture brings the focus back to the risks involved in running big-ticket foreign operations.
(This story was published in Businessworld Issue Dated 17-12-2012)