Mumbai Airport cancels HDIL slum redevelopment pact

By Swati Pandey and Aditi Shah

MUMBAI (Reuters) - Mumbai airport said it has terminated a contract with Housing Development & Infrastructure Ltd (HDIL) to resettle 1 million slumdwellers on airport land and free it up for development, sending shares in the real estate firm down over 10 percent on Wednesday.

HDIL said it would mount a legal challenge to the move by Mumbai International Airport Limited (MIAL) to abandon the pact, one of the developer's biggest projects.

"This is a force majeure event and as such we are going to approach the court," Sarang Wadhawan, vice chairman of HDIL, told television channel CNBC TV18.

The project to free up 275 acres of land was awarded in October 2007 and was to be completed within four years, according to the airport operator.

HDIL said it had been unable to get permission from state authorities to move residents out of the slums.

Encroachment on to public and private land is common in Asia's third-largest economy where every year hundreds of thousands of people migrate from small towns and villages to big cities in search of a livelihood.

The lack of affordable homes forces them to live in slums, most of which are illegally occupied.

Shares in HDIL, which has a market capitalisation of about $388 million, fell as much as 10.6 percent on Wednesday. They closed down 6.8 percent at 47.95 rupees in a weak Mumbai market.

The stock has lost more than half its value in 2013 while the Nifty is up 3.4 percent this year.

"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," the airport operator said in a statement on Wednesday.

HDIL wrote off the unrealised cost of nearly 4.5 billion rupees from the airport project in its March quarter results on Wednesday.

HDIL reported a net loss of 2.8 billion rupees for the March quarter. Its revenue fell about 78 percent during the quarter compared with a year ago.

A senior official with the city's regional development authority declined comment and the secretary of the Maharashtra state urban development department could not immediately be reached for comment.

HDIL shares hit a record low 43.5 rupees in March after a local rating agency cut its credit ratings.

Wadhawan said HDIL planned to pare its nearly $700 million debt by 15-20 percent over the next year by selling assets.

(Editing by David Cowell)