Lenders may get a chance to recover money from Gammon’s failed container terminal

The planned restructuring of a failed container terminal, built by Gammon Infrastructure Projects Ltd (GIPL) at the Mumbai Port, through a re-bid, will give a chance to the five state-owned lenders, including State Bank of India, to recover a big portion of the money lent to the project.

The terminal, originally designed to load containers, will be re-structured to allow handling of automobiles and steel also as the government looks to revive stalled projects by changing the cargo profile and help lenders recover money that has turned sticky due to idling facilities and low cargo volumes.

Mumbai Port Trust finalised the much-delayed re-structuring plan after forging a consensus with the project promoters and lenders that include Canara Bank, Punjab National Bank, UCO Bank and India Infrastructure Finance Co Ltd.

“The restructuring proposal has been submitted to the Cabinet for approval,” Mumbai Port Trust Chairman Sanjay Bhatia said adding that the re-bid will be initiated after the Cabinet okays the proposal.

The restructuring plan has pegged the asset replacement value or the settlement amount, a key part of the re-tendering, at ₹548 crore, on the basis of the valuation worked out by SBI Capital Markets Ltd. Of this, ₹471crore will go to the lenders and the balance to Gammon.

Till March 2016, the five banks had an exposure of about ₹706 crore (including interest) to the project that has been delayed by more than six years due to reasons over which the project promoters had no control.

Mumbai Port Trust will set 35.064 per cent (the price bid put by Gammon to win the container terminal deal in 2007) as the reserve revenue share price for the re-tender.

Price bids below the reserve price will not be accepted.

Gammon will have a ‘right of first refusal’ on the restructured project during re-tendering.

If Gammon Infrastructure decides to match the highest revenue share price bid, in case it is not the highest bidder during re-tendering, by exercising the right of first refusal, the asset replacement value would be meaningless because the Mumbai-listed firm would be the project operator under revised terms.

But, if Gammon Infrastructure decides not to exercise its right of first refusal to match the highest bid, the new operator of the project will have to pay an upfront amount to the Mumbai Port Trust that is equivalent to the asset replacement value or settlement amount agreed by the Mumbai Port Trust and Gammon Infrastructure.

Typically, the replacement value of project assets is used to compensate the project operator for his investment in the project, in the event of termination of contract due to default of the government-owned Port Trust.

But, in this case, the upfront amount to be paid by a new operator will not be given to Gammon Infrastructure because it has defaulted on the loan. The lenders will invoke their step-in right to claim their amount which would also help the Port Trust hand over the project asset to the new operator without any encumbrance.

“The banks have agreed to take a hair-cut by waiving off the interest on the loan. The new operator will submit ₹548 crore into an escrow account and this account will be used to pay off the lenders,” a spokesman for the Shipping Ministry said.

The first phase of the new facility costing ₹1,228 crore was expected to start operations in December 2010.

Gammon Infrastructure completed the construction of the berth, but was unable to start operations because the Mumbai Port Trust could not complete the dredging work and hand-over the entire back-up area required to store containers.

Gammon also lost time awaiting security clearance from the government for buying cranes used for loading and unloading containers.

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