By Khairie Hisyam
The price tag for ailing 1Malaysia Development Bhd’s (1MDB) 60% equity divestment in Bandar Malaysia development project remains fluid as adjustments may be made while the deal is being finalised, said the company amid confusion after one party involved reported a different figure to the Hong Kong Stock Exchange (HKEx) last weekend.
Announced on Dec 31, 2015, the deal will see a consortium comprising Iskandar Waterfront Holdings (IWH) and the Malaysian arm of Hong Kong-listed China Railway Group (CREC) assume a 60% stake in the development project, which has an estimated gross development value of RM150 billion over a 15 to 25-year period.
While the figure announced on Dec 31, 2015 was RM7.41 billion for 60% share of the 486-acre development land, CREC told the HKEx on Jan 3 that the consortium will pay RM5.28 billion for 60% equity in Bandar Malaysia Sdn Bhd. This sparked confusion among some members of the public who have taken to social media to question whether there is a shortfall.
In a statement today, 1MDB said the RM7.41 billion land sale is subject to further adjustments while the transaction is being finalised and depends on “whether or not certain Bandar Malaysia-related liabilities can be passed to the consortium”. This refers to a sukuk obligation worth RM2.4 billion in notional value at maturity as well as contract costs for relocating existing military facilities on the land.
“The valuation contained in the announcement made by CREC to HKEx refers not to the land sale valuation, but instead to their estimated share of the nett equity value of the Bandar Malaysia project, based on certain assumptions, which are subject to further negotiations during the completion period between January and June 2016,” said 1MDB.
“The agreement executed between the parties on Dec 31, 2015 provides for a robust and objective mechanism to determine, amongst others, these matters, which all parties have committed to.
“The starting point of any nett equity value calculation, is the land sale valuation of RM12.35 billion, of which the consortium’s 60% share equates to RM7.41 billion. This is the basis upon which the 10% deposit of RM741 million has been calculated and agreed upon by all parties,” said 1MDB further.
Arul Kanda
On Dec 31, 2015 1MDB president and group executive director Arul Kanda told reporters that the final payment terms for the deal is still being discussed, although 1MDB will receive a deposit of RM741 million upon the execution of the share sale agreement signed on that day.
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.
The majority stake divestment is the final piece in 1MDB’s debt rationalisation puzzle, said Arul to reporters last week, which seeks to resolve a debt conundrum that has seen the company struggle to service debt commitments of RM42 billion in borrowings as at March 31, 2014.
However there as not been a final decision on whether the remainder 40% equity in Bandar Malaysia will remain with 1MDB or be transferred to the Finance Ministry – which wholly owns 1MDB – eventually, clarified Arul to reporters last week.
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 Bhd, 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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