GMR lenders Axis Bank, IOB anxious over recovery

15 Dec 2012

Axis Bank and Indian Overseas Bank (IOB), lenders to GMR Ltd for its cancelled Male airport contract, are likely to seek $175 million in compensation as part of the over $800 million compensation package sought by GMR from the Maldives government, according to an NDTV report citing unnamed sources.

The lenders, led by Axis Bank, are also likely to file separately for legal arbitration proceedings to recover their dues, the sources added. Axis Bank and IOB have an exposure of $160 million to the project.

GMR Airports, in a letter sent to the Maldives government on Friday, sought compensation on the amount spent by them on the airport, the returns on equity that was to accrue from the project, as well as compensation for damages incurred due to the cancellation of the contract, the sources said. (See: 'Cheated' GMR demands $800 mn from Maldives)

Under a separate contract signed for the Male airport, the lenders have direct recourse to Maldives Airport Company Limited (MACL).

Although the Maldives government has guaranteed the loans extended to the project, the banks will be at risk should GMR not service interest on the loan, according to the NDTV report, as arbitration proceedings are expected to continue over next six months to even a year.

Axis Bank and IOB may also have to write off the loan from their books, analysts observed. However, the report said the Indian infrastructure company has enough funds in the banks' escrow account for any eventuality. (See: GMR to incur heavy losses from Maldives fiasco)

An escrow account, which prevents a default in loan obligations by a company, ensures that funds received by a company cannot be accessed by it but goes directly to the lenders.