Banglaore/ Mumbai: Mumbai International Airport Pvt. Ltd (MIAL) has terminated the slum rehabilitation contract given to Housing Development and Infrastructure Ltd (HDIL), forcing the real estate firm to write off the costs incurred and report a loss for the March quarter.

The slum rehabilitation project that entails shifting and re-housing thousands of slum-dwellers to free land for the airport hadn’t progressed much in the past two years.

The scrapping of the contract may further delay the proposed expansion and modernization of the Mumbai airport and financially hurt the HDIL as the airport slum rehabilitation contract was the biggest on its books, said analysts.

HDIL said its legal counsel had advised it that the notice of termination of the contract was not tenable in a court of law and that it had initiated legal action.

The real estate company said it wrote off 441.98 crore after MIAL scrapped the contract, leading to a loss of 279.9 crore in the March-ended quarter.

HDIL made a profit of 315.25 crore in the year-ago March quarter. Revenue in the latest quarter fell to 142.7 crore from 625 crore a year ago.

Sarang Wadhawan, HDIL vice-chairman, blamed the termination of the MIAL contract on “processes not followed by government of Maharashtra",referring to the state’s delay in identifying households on the encroached land that would be eligible for rehabilitation.

“The termination notice will not impact any ongoing developments of the company at various locations," he said.

MIAL said it cancelled the contract because of delays by HDIL in executing the project.

“MIAL entered into Slum Rehabilitation Agreement with HDIL in October 2007 and as per the said agreement, HDIL had to complete the slum rehabilitation within four years, i.e. by 2011," an MIAL spokesperson said in a statement.

“Because of non-performance of HDIL, MIAL board took a decision to terminate the agreement and accordingly, in the month of February 2013, MIAL terminated the said agreement. Prior to termination, MIAL invoked performance securities," the company said.

An MIAL executive, requesting anonymity, said the termination of the HDIL contract will not impact the proposed and long-awaited launch of Terminal 2 (T2), which is likely to begin operations in the final quarter of this year.

T2 will be connected by a dedicated 3.2km elevated highway and integrated with a multi-level car park for 5,200 vehicles.

HDIL announced the cancellation of its contract only on Wednesday while declaring its March quarter results. GVK Power and Infrastructure Ltd, which holds 50.5% in MIAL, hadn’t announced the development either.

Bid Services Division (Mauritius) Ltd holds another 13.5% stake in the airport operator, ACSA Global of South Africa 10% and state-run Airports Authority of India the remaining 26%.

Hari Prakash Pandey, vice-president (finance and investor relations), HDIL, said over the phone that the company had begun a process of mediation and arbitration but got no response from MIAL. HDIL waited until the announcement of its quarterly results to explain the financial impact of the termination, he said.

The modernization of Mumbai international airport is one of the most difficult urban infrastructure projects to be undertaken in the country because of the surrounding slums and its location within the city.

The total land required for the Mumbai international airport is around 2,000 acres, while the land available for the modernization programme is only 1,400 acres. Around 75,000 families are living in slums on 309 acres of encroached airport land.

In March, Sanjay Reddy, vice-chairman of GVK Power and Infrastructure, had said Mumbai airport had plans to demolish all encroachments to “create and manufacture land" for its modernization and upgradation.

On Wednesday, Reddy said, “It has no negative impact on any of our plans."

In a call with analysts after the results were announced, HDIL’s Pandey said the company had handed over 1,000 apartments on the Sahar elevated road and 16,000 more apartments were ready for occupation.

The lack of clarity on the eligibility norms for rehousing the slum-dwellers has put “the project in uncertainty and one has to wait and see how MIAL takes this forward", said a real estate analyst who didn’t want to be named citing the sensitivity of the issue. “Financially, it would impact HDIL a lot because it has been dependent on the project to take off, as it is the largest on its books."

Two years ago, around 70% of HDIL’s debt was linked to the airport project, but now not more than 20% is directly linked to it, Pandey said in March. As of 31 March, HDIL’s consolidated debt was 4,018.83 crore.

The HDIL scrip has been hammered since January after its promoters sold five million shares, or a 1% stake, to raise capital. Later, its debentures were downgraded in March by rating agencies anticipating a potential default.

HDIL has lost nearly 57% of its value this year. On Wednesday, the stock fell nearly 7% to 47.95 on BSE while the Sensex remained nearly unchanged at 20,147.64 points. GVK Power ended the day 2.4% lower at 8.51 a share.

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