MALE Maldives will wrest control of its international airport from GMR Infrastructure(GMRI.NS), cancelling its biggest foreign investment project, despite an order from a Singapore court suspending the project's termination.
The standoff over the $511 million project threatens to cloud foreign investor sentiment on Maldives, which is seeking overseas cash for many of its tourism projects. The country terminated an agreement with GMR last week, rattling its relations with India.
"We will continue the airport takeover and Inshallah next Saturday onwards MACL (state-controlled Maldives Airport Company Ltd) will be running the airport," Mohamed Nazim, defence minister and acting transport minister, told a press conference in the capital Male on Monday.
Earlier in the day, GMR won a stay order from a Singapore court, which the company says has jurisdiction over disputes in the agreement, on cancellation of the airport contract. GMR said it would continue to operate the airport as normal.
"We have obtained an injunctive stay on the operations of that (contract termination) letter," said Arun Bhagat, spokesman for the GMR group.
The government of the Maldives, a tropical island chain south-west of India famous for its luxury beach resorts and white sands, cancelled the 2010 agreement saying that it was not valid.
The cancellation follows President Mohamed Waheed's failure to renegotiate terms, sources close to president's office told Reuters, and comes after a year of political turmoil that saw the ousting of its former president and months of unrest.
Shares in GMR closed up 5.4 percent at 19.60 rupees in a Mumbai market that ended down 0.2 percent.
"We would fight for our rights all the way, through the court. That is very clear," Andrew Harrison, chief executive officer of the GMR airport project, told CNBC-TV18 news channel.
"We expect that under the terms of the concession agreement ... any orders issued by the (Singapore) court would be respected, because that is enshrined within the agreement."
Imad Masood, a spokesman for the President of Maldives said he had not received the court's order, when contacted by Reuters.
The project cancellation exacerbated already strained relations with neighbouring India, which last week warned it would "take all necessary measures to ensure the safety and security of its interests and its nationals in the Maldives".
The move sent a "very negative signal" to foreign investors, India added.
"If they don't comply (with the stay order), the Maldives will no longer be respected as upholding its obligations under international law, which will be very detrimental to future foreign investment," Fayyaz Ismail, a lawyer for GMR told Reuters. "Hopefully they will be reasonable."
The contract to upgrade and operate the airport and build a new terminal came after a global tender overseen by the World Bank and signed under former president Mohamed Nasheed's administration.
The project was implemented through a joint venture company comprising GMR Infrastructure Limited and Malaysia Airports Holding Berhad.
However, Nasheed's rivals filed legal action saying the contract was invalid as it contained a $25 airport development charge per outgoing passenger which was not authorised by parliament.
"Waheed cannot ignore international law at his whim and fancy. Rules are rules and they must be respected," Nasheed told Reuters in an e-mail on Monday.
(Additional reporting by Kaustubh Kulkarni and Aradhana Aravindan in MUMBAI and Shihar Aneez in COLOMBO; Writing by Henry Foy; Editing by Muralikumar Anantharaman)