By Khairie Hisyam
Ailing 1Malaysia Development Berhad (1MDB) is divesting 60% in its Bandar Malaysia project for RM7.41 billion to a consortium led by Iskandar Waterfront Holdings (IWH), less than two months after announcing two shortlisted final bids for the stake.
The share sale agreement for the deal, which values the entire project at RM12.35 billion, was inked in Kuala Lumpur this morning. The valuation is nearly three times the net book value of the project’s land, which comes to RM4.2 billion, said 1MDB president and group executive director Arul Kanda.
“We have always stated that our target value for Bandar Malaysia is RM11 billion to RM12 billion,” said Arul to assembled journalists after the signing. “We have now achieved RM12.35 billion, exceeding our expectations in terms of the target value for the rationalisation plan.
The consortium is a 60:40 joint venture between IWH and China Railway Engineering Company Corporation (M) Sdn Bhd (CREC) and will be paying RM7.41 billion the 60% stake. Upon executing the share sale agreement, 1MDB will receive a 10% deposit and the deal is expected to be concluded by end-June 2016.
However the parties involved are still negotiating the exact payment terms of the remaining amount, clarified Arul later. 1MDB has not made final decision on how to use the proceeds from this divestment.
At present Bandar Malaysia Sdn Bhd has associated debt in terms of a sukuk obligation, carrying a notional value at maturity of RM2.4 billion, Arul said, while its accrued value is RM1.63 billion.
A 486-acre mixed-use development sited on the old airport at Sungai Besi, Bandar Malaysia is located just 4km away from the Petronas Twin Towers and was previously reported to have as much as RM40 billion in gross development value.
Notably, Bandar Malaysia is the terminus for a proposed RM40 billion high-speed rail project linking Kuala Lumpur to Singapore with stops in Iskandar Malaysia.
IWH is the master developer of Flagship A area in Iskandar Malaysia and is a public-private partnership between Credence Resources Sdn Bhd, which holds 60% equity, and the Johor State government via state arm Kumpulan Prasarana Rakyat Johor Sdn Bhd, which holds the remaining 40%. It currently owns 4,300 acres of prime waterfront land in Iskandar Malaysia.
In turn, CREC is the Malaysian arm of the China state-owned China Railway Engineering Corporation. It is among the world’s largest engineering and construction firms with turnover exceeding US$100 billion annually, a statement said. The company has had business presence for over 15 years in Malaysia, mainly in construction, it said.
40% – no final decision yet
Meanwhile, 1MDB has not made final decision on whether it will retain the remaining 40% equity in Bandar Malaysia, said Arul to reporters.
As part of its rationalisation plan, 1MDB did consider the transfer of the remaining 40% to the Ministry of Finance, its sole shareholder, said Arul. However “no final decision has been made” as yet on the matter, he said.
The 60% stake divestment is the “final piece of the puzzle” in 1MDB’s rationalisation plan, said Arul, who took charge of the company in early January this year.
An announcement by 1MDB in February 2015, on rationalising its debts of roughly RM42 billion in borrowings, indicated that it will monetise its assets and spin off holdings into corporate entities. This implies that the company in itself may be wound down in the aftermath.
On Nov 22, 2015, 1MDB announced that it is selling its entire power assets held under Edra Global Energy to China General Nuclear Power Corp (CGN), another China state-owned entity, for RM9.83 billion. The amount is nearly 25% higher than a competing bid submitted by Tenaga Nasional Berhad (TNB), said to be around RM8 billion.
Slated for completion in end-February 2016, the Edra Global Energy disposal will also see CGN assume all associated debts which relieves 1MDB of roughly RM8 billion in debts.
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