By Khairie Hisyam
When first announced, 1MDB’s Bandar Malaysia project was a grand development that promised to set a new yardstick for world-class living in Malaysia. Yet foreigners may have the last laugh if 1MDB ends up selling a majority stake to a foreign entity.
So it is now confirmed: there are two “final, binding and fully funded” bids to buy a 60% stake in 1Malaysia Development Bhd’s (1MDB) Bandar Malaysia project, as announced by the company’s subsidiary 1MDB Real Estate on Nov 12.
But the elephant in the room now is why the company seeks to let go of a majority stake in the project, potentially to foreign entities, when there is every risk that such a transaction may turn out detrimental to national interests. Shouldn’t it retain at least majority control?
Of course, that 1MDB seeks to sell this stake is understandable if contentious. It is up to its neck in debt with RM42 billion in borrowings with insufficient cash flow to service its debt commitments, based on its annual accounts.
Selling off this stake is a quick way to raise cash, as is its proposed disposal of its power assets, though this latter disposal may be counter-productive as the power assets are its only real cash cow. (Read more on that here.)
However, there is much irony over the whole exercise considering what Bandar Malaysia originally set out to be.
On available information, Bandar Malaysia is a mammoth undertaking just under 4km away from the Petronas Twin Towers on the 486-acre site of the old Sungai Besi airport. Past reports placed its gross development value (GDV) as high as RM40 billion.
1MDB’s website said it will be built like a world-class city to have green infrastructure, sustainable housing and a range of commercial and lifestyle facilities to become “the yardstick for sustainable urban housing within Malaysia”.
And the cherry on top is that the Malaysian terminus for the RM40 billion high-speed rail (HSR) project linking Kuala Lumpur and Singapore will be located in Bandar Malaysia.
In short, it is a significant development with some strategic interest to the Malaysian government and by extension the Malaysian public. This is underscored no less by the fact that the site was originally government land sold to 1MDB at far cheaper prices than recent transacted prices for parcels on the site.
This backdrop raises concerns on at least two levels in light of 1MDB’s plan to sell a majority stake – 60% to be exact – to parties as yet unnamed.
On one hand, a majority stake likely means having control over the future direction, concept and other big decisions involving the development and it is difficult to say whether a future 60% owner of the project will hold Malaysian national interests to heart when making these calls.
Arul Kanda
And make no mistake, there is a very real possibility that the majority stake may go to a foreign entity. On Oct 31, 1MDB president and group executive director Arul Kanda said he expected three offers to come in for the majority stake by mid-November, of which only one was expected from a local entity. (Obviously only two parties ended up submitting bids.)
This means at least one of the bids received might have come from a foreign consortium, potentially both. Should a foreign consortium end up as a majority owner of the Bandar Malaysia development, what assurances would the Malaysian public get that what was originally government land does not end up being used in ways contrary to national strategic interests?
As an example what if they subsequently cut corners and amend plans to maximise profit in ways that go against public interest?
And that brings the second concern: that the eventual beneficiary of the development project may be foreigners spell much pointlessness over the whole exercise.
In simple terms, recall that the site was originally government land. It was sold to 1MDB as part of the company’s mandate to drive strategic development initiatives for the country.
The fact that it was sold at far cheaper prices to 1MDB compared to the prices 1MDB is selling off parcels today means that 1MDB has reaped some gains. However, the project has a long way to go yet to completion and much returns are yet to be reaped.
If now a majority stake is sold to foreigners, would that not mean that foreigners are eventually the ones benefitting from the commercialisation of what was originally government land, given to a wholly-owned company of the Finance Ministry to drive strategic development efforts for the country no less?
Then in hindsight, it would have been better for Malaysians if 1MDB had never been sold the land in the first place. More likely a government agency or local entity would have found better use for the land without running into financial problems that require it to sell off a majority stake in its own project, effectively taking a back seat and letting a new shareholder run things.
Indeed, it would have been better for Malaysians if 1MDB had never been set up in the first place.
GRRRRR!!!
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