GMR Infra is trying to retrieve R747 crore stuck in Eurobank of Cyprus,whose banking system is in a crisis. The amount is part of the proceeds from GMR’s sale of its European power company InterGen.
GMR holds these deposits through its Cyprus subsidiary named GMR Infrastructure (Cyprus). The amount was deposited in the island nation’s bank for prospective deals that the infrastructure major was pursuing in Europe.
The deposits now face restrictions on withdrawals. The Cyprus bailout deal with the European Central Bank means deposits above 100,000 euros are not secured. According to the final agreement,the account holders may end up losing money up to 40%,said an auditor with an international audit firm who did not wish to be identified. “There are some restrictions on withdrawing the money. But as and when we show them our requirements,we will be able to withdraw it in tranches,” GMR Group CFO Madhu Terdal told FE.
“We did the InterGen acquisition through Cyprus because of the tax benefits. From an investment perspective,it made sense. When we sold the assets,the money went back to the Cyprus company,” he added. The India-Cyprus tax treaty the double taxation avoidance agreement was notified in 1995.
The $1.13-billion InterGen acquisition in 2008 marked GMR’s biggest move overseas and among the assets it brought to the company was a power project in Singapore. In a bid to reduce its debt burden,GMR divested its stake in InterGen to China Huaneng Group (CHG) for $1.23 billion in April 2011.
According to HDFC Bank chief economist Abheek Barua,the capital controls will be relaxed in Cyprus only in the next 6-7 months. “There is no clarity as to how much the depositors will lose.”
According to Ashish Shah,an analyst with IDFC who tracks GMR,the company can only withdraw as and when the capital controls are eased.
“We kept the money outside thinking that there will be some overseas opportunities coming up,” Terdal told an analyst on a conference call recently. The company has treated the amount as restrictive bank balance and put under other non current assets in the consolidated results.
GMR posted a consolidated net profit of R88 crore for FY13 as it had booked a profit of R1,231 crore from its stake sale in Island Power in Singapore in March,its first full year profits after two consecutive years of losses.
The group inherited this power plant as part of its InterGen acquisition.