04
May
17

China-Backed Plan to Prop Up Scandal-Plagued Malaysian Fund 1MDB Collapses – WSJ

China-Backed Plan to Prop Up Scandal-Plagued Malaysian Fund 1MDB Collapses

Beijing refused to authorize state-owned company’s investment in real estate project

A deal for a Chinese state-owned company to help bail Malaysia out of a multibillion-dollar financial scandal fell apart Wednesday after the Chinese government refused to authorize the investment.

China Railway Engineering Corp. and a local Malaysian partner had agreed in December 2015 to take a 60% stake in Bandar Malaysia, a major residential and commercial real-estate project in Kuala Lumpur that originally was being developed by 1Malaysia Development Bhd., a Malaysian state fund.

The deal, valued at 7.4 billion ringgit ($1.7 billion), was a cornerstone of efforts by Malaysia’s government to sell off 1MDB assets after the fund ran up over $13 billion in debt. The fund is now the center of major corruption probes in a number of countries, including by the U.S. Justice Department.

The China Railway consortium was unable to meet criteria under the December 2015 agreement to complete the sale, according to a statement Wednesday by TRX City Bhd., a company owned by Malaysia’s Finance Ministry, which in turn owns the 1MDB fund. It didn’t give details.

The China Railway consortium, which also included Malaysia-based Iskandar Waterfront Holdings Sdn Bhd., confirmed in a statement that it had received a “notice of termination” from TRX City. The consortium said it was reviewing the termination with its legal adviser.

TRX City’s press release “does not fully and accurately reflect the circumstances and conduct of the parties in this matter,” the statement said.

The failure of the deal is a blow to Malaysian Prime Minister Najib Razak, who set up 1MDB in 2009 with the stated goal of developing Malaysia’s economy, and headed its board of advisers. At the time of the deal, in a New Year’s message to Malaysians, he heralded it as “the final major milestone in the 1MDB rationalization plan.”

The 1MDB fund hasn’t published financial statements for 2015 or 2016, so its current financial situation is unclear, Still, the deal’s failure is likely to add to pressure on Mr. Najib, who also is finance minister, to find other ways to pay 1MDB’s debts.

The prime minister’s office and 1MDB didn’t respond to requests for comment.

An internal Malaysian Finance Ministry document on problems with the sale, viewed by The Wall Street Journal, said a major reason for its failure was that China’s government declined to give the green light for China Railway to make the investment. A person familiar with the matter confirmed this.

…more
China-Backed Plan to Prop Up Scandal-Plagued Malaysian Fund 1MDB Collapses
By Bradley Hope and
Tom Wright
May 3, 2017 – WSJ

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