1MDB black hole widens again as Bandar Malaysia deal unravels

1MDB black hole widens again as Bandar Malaysia deal unravels

Anil Netto surveys the backdrop to the spectacular unravelling of the Bandar Malaysia deal, a vital component of the 1MDB rescue plan.

I was midway writing a follow-up to my earlier piece ‘Black hole of 1MDB’, when news broke that the Bandar Malaysia deal had fallen through.

In that earlier piece, I had estimated that very conservatively 1MDB stood to gain RM12bn in revaluation surpluses from its two main land banks (RM7.2bn from its 486-acre Bandar Malaysia/Sungai Besi land and RM5.1bn from the 70-acre TRX land) – without doing any work at all! Recall that 1MDB had acquired its two main land banks at dirt cheap prices – RM65psf for the TRX land and RM76psf for the Bandar Malaysia/Sungai Besi land.

That RM12bn in revaluation gain was a conservative figure. Perhaps 1MDB could have gained up to RM15bn, based on prevailing land market values back then. Bandar Malaysia alone accounted for about half this figure or more. As 1MDB had already booked in RM5.0bn into its account, this means it (and indirectly the Malaysian government) still had an additional RM7-10bn to cushion further 1MDB losses.

Indeed, the total of RM12-15bn in revaluation surpluses would have come in handy in papering over the black hole of 1MDB and settling the US$6.5bn Ipic mess. There were at least $4.2bn of questionable transactions by 1MDB, including a $2.1bn payment to a firm with a similar name, Aabar Investments PJS Ltd.

The Malaysian government had been counting on receiving RM7.4bn from the sale of a 60 per cent stake in the firm managing Bandar Malaysia as part of the 1MDB rationalisation plan. The plan was to sell it to a consortium comprising Iskandar Waterfront Holdings (IWH) (60 per cent) and China Railway Engineering Corp (CREC) (40 per cent).

As they say about the best-laid plans…. Even back then, the China-led consortium seemed to be disputing the value of the 60 per cent stake, reportedly claiming it was worth only US$1.2bn (RM5.3bn) instead of RM7.4bn.

That was then. Now, former 1MDB unit TRC City Sdn Bhd, taken over by the Ministry of Finance, says payment hasn’t been made. But the consortium is insisting it has met all payment obligations. So the plot thickens.

Let’s just say something went terribly wrong and the deal fell through.

The jewel that lost its glitter

The Bandar Malaysia project, with a gross development value of RM160bn, was touted as the jewel in China’s deals with Malaysia, so much so that some mocked it as Bandar Cina. It was supposed to be a major railway hub linking the controversial RM55bn East Coast Rail Link project and the KL-Singapore high-speed rail project.

For China Railways, getting involved in Bandar Malaysia was one way of getting a foothold into the multi-billion KL to Singapore high-speed rail project. Even though this project was supposed to be through open tender, many rightly or wrongly expected both these major lines to be eventually built by China companies with the participation of Chinese financial institutions, which would be based in Bandar Malaysia.

Eyebrows were raised further when it was revealed that China Railways was supposed to locate the regional headquarters of China Railways in Bandar Malaysia. In fact, a large China Railways display board had already been put up inside the KL Sentral Terminal – a sign of things to come (or rather things that were supposed to come).

Bandar Malaysia was also supposed to be the hub for a “digital free trade zone” and a major focal point for mixed property development.

Though Abdul Rahman Dhalan tried to put on a brave front and said the Bandar Malaysia project would go on, there is no denying that it is a hammer blow. It raises all kinds of questions about the rest of the close to RM150bn in deals which Najib entered with China only recently.

Let us survey the backdrop to this mess which might give us a better picture of the whole affair.

1MDB black hole widens again as Bandar Malaysia deal unravels
Anil Netto
6 May 2017 – Aliran


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