By Khairie Hisyam
Tony Pua
The additional clarification from 1Malaysia Development Bhd (1MDB) over its Bandar Malaysia stake divestment is welcome but has made the situation “even more bizarre”, said a member of parliament (MP) today.
In a statement, Petaling Jaya Utara MP Tony Pua said the clarification issued by 1MDB on Jan 6, 2016 effectively contradicted both its original statement on Dec 31, 2015 and what one party in the transaction, China Railway Group Ltd, disclosed to the Hong Kong Stock Exchange (HKEx) on Jan 3, 2016.
While both 1MDB and China Railway stated respectively that the transaction entails the sale of 60% equity in Bandar Malaysia Sdn Bhd (BMSB), Pua highlighted that 1MDB’s clarification issued on Jan 6 refuted both announcements by saying the buying consortium is not purchasing the stake in Bandar Malaysia Sdn Bhd but instead purchasing 60% equity in a newly created special purpose vehicle (SPV).
According to 1MDB, this new SPV will then separately acquire the 16 land parcels that make up Bandar Malaysia’s 486-acre development land site, valued at RM12.35 billion in total in the transaction.
“While it may appear to the layman that we are splitting hairs, the subtle but clear difference in the share sale and purchase agreement holds wide implications, and require even further clarifications,” said Pua. “The first question on everyone’s minds would be, why did China Railway announce to the Hong Kong Exchange that it acquired 60% of BMSB when it only acquired a newly created SPV?”
In addition, Bandar Malaysia Sdn Bhd currently owns 12 of the 16 land parcels making up the development land in question. This complicates matters, said Pua.
“If 60% of BMSB has been sold, then the Bandar Malaysia land has been effectively taken over by the joint venture,” said the MP. “However, if only 60% of a newly created SPV has been sold, then the SPV has yet to take over the Bandar Malaysia land parcels, which is still subject to further negotiations.”
TRX City Sdn Bhd, a wholly-owned subsidiary of 1MDB, owns the remaining four parcels.
The confusion over the transaction surfaced after HKEx-listed China Railway told the exchange regulator that the buying consortium is purchasing 60% equity in BMSB for RM5.28 billion. This is 28% lower than RM7.41 billion stated by 1MDB on Dec 31, 2015, although 1MDB attached this figure to “60% share of land” in reference to the 486-acre land and not to equity.
However, 1MDB also separately stated that the RM7.41 billion purchase consideration may be subject to further adjustments.
The difference appears to be the amount of associated liabilities attached to the land. According to 1MDB, there are two liabilities associated with ownership of the land. The first is a sukuk with a notional value of RM2.4 billion at maturity, with accrued value of RM1.63 billion.
The other liability is the ongoing relocation of the existing Sungai Besi air base on the land itself, which is currently estimated to be at roughly RM1.9 billion. This means a 60% share of these liabilities would roughly come to RM2.12 billion.
1MDB said that depending on how negotiations unfold, the buying consortium will either assume its share of these liabilities after becoming a 60% stakeholder and advance RM5.28 billion in payment to 1MDB or simply pay RM7.41 billion directly, after which 1MDB will use part of the payment to settle the liabilities.
Which scenario unfolds would depend on relevant approvals being obtained in relation to the liabilities, among others from the Malaysian government, sukuk investors and pre-appointed contractors already approved to undertake the relocation work.
“The entire Bandar Malaysia sale to the IWH-CREC joint venture is becoming increasingly confusing to both the financial community and the man on the street,” said Pua. “As previously mentioned, to avoid losing further credibility, we call upon the 1MDB Directors should immediately agree to make public the share sales and purchase agreement between 1MDB and the IWH-CREC Consortium.”
“This is to ensure that Malaysians can understand the exact terms of the transaction, and not the fancy spruced up versions which 1MDB wants Malaysians to believe,” added the MP.
For a quick overview of the situation, read a Q&A compiled by KINIBIZ here.
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