Consortium to develop one-third of the land in first phase through tie-ups to realise investments
ISKANDAR Waterfront Holdings Bhd (IWH) securing a 60% stake in the 486-acre Bandar Malaysia project will put the Johor-based developer on stronger footing for a listing this year.
The master developer of the 4,300-acre Danga Bay waterfront city in Johor is said to have put off its plans to go public twice before - the first was by the end of 2013 and the second in the first half of 2014.
Led by managing director and major shareholder Tan Sri Lim Kang Hoo, IWH keeping off its listing came as no surprise because the property market was softening and IWH was primarily a builder of sea-fronting apartments.
But now armed with the mandate as master developer of Bandar Malaysia that is estimated to have a gross development value of RM100bil over the next 25 years, IWH will have more to offer investors.
“Because of the market situation, that’s why we delayed.
“We are working on it, the listing is still on. It’s just a matter of time,” managing director Tan Sri Lim Kang Hoo said in a press briefing on Tuesday.
A joint venture between IWH and China-based China Railway Engineering Corp (CREC) will own 60% of Bandar Malaysia.
The remaining 40% is held by the 1Malaysia Development Bhd (1MDB) and may be transferred to the Finance Ministry. (MoF).
IWH is 60% owned by Lim’s Credence Resources Sdn Bhd and 40% owned by Kumpulan Prasarana Rakyat Johor Sdn Bhd.
IWH is no stranger to being a master developer.
It earned a track record developing the Danga Bay project in Johor Baru sea front where it has gone into partnerships with 11 developers so far to carry out projects along a 8km coastal stretch of Danga Bay.
These projects are reported to have a gross development value of RM125bil and will be done over the next 10 to 15 years.
For Bandar Malaysia, Lim is looking at developing the first phase initally, involving one-third of the land.
Lim said the consortium plans to source for local and international partners to sell and develop the first phase of the project, which makes up one third of the land area.
“The first phase will be a stimulus to woo multi-national companies to relocate their regional offices to Malaysia. It will also have the potential to become a regional tourism destination,” he said.
The remaining two thirds will be reserved as landbank.
It is easy to fathom why IWH-CREC needs to quickly divest a portion of the land for development as they need to pay off 1MDB a total of RM7.4bil in phases for its 60% stake. The intial deposit of RM741mil is to be paid upon the signing of the sales and purchase agreement.
The transaction values the entire 486 acres at RM12.35bil, a massive upside compared to the RM400mil that 1MDB had paid the Government for the land in a deal completed in 2013.
Currently the said land houses the Sungai Besi airfield and the army and police air wings. The existing facilities will be relocated by 2018 and the cost is included in the RM12.35bil price tag.
IWH-CREC wades off challenge
It was not a easy ride for the IWH-CREC consortium. It had to beat a field of 40 competitiors, including international names, that was finally narrowed down to two.
The other party is believed to be Permodalan Nasional Bhd.
However, there were reports of a last minute bid by a local company teaming up with a Qatar fund for Bandar Malaysia - after the closing date for the bid on Nov 9, 2015. However the IWH-CREC consortium warded off the challenge with an initial RM150mil deposit that was placed last week.
The stiff fight for Bandar Malaysia is no surprise because it is the single largest remaining piece of development land in the heart of Kuala Lumpur. The area is so big that it can be developed in phases over a period of 15-25 years.
Bandar Malaysia is situated at the old airport site in Sungai Besi and a little over a kilometre away from 1MDB’s high-profile Tun Razak Exchange. It has all the infrastructure in place such as railway, highways and high speed rail to Singapore and possibly Bangkok.
1MDB already has a plan for Bandar Malaysia.
But the IWH-CREC-led consortium will improve and upgrade the existing 1MDB development masterplan for Bandar Malaysia, which has been approved by the Government.
The project, which will be an integrated underground city, is modelled after Canada’s Montreal underground city, where it will include financial and commercial centres, tourism centre, as well as a hub for multinational corporations (MNCs).
An analyst says that it would not be an easy task for IWH-CREC to monetise Bandar Malaysia, considering that they had to pay a premium for the land.
The analyst says only 60% of the land is usable as 40% will be used for roads, substations, sewage and parks.
“We can assume only 70% of the land can be used as the rest would be for parks and other infrastructure. So the cost per square feet would be about RM1,000. It is alright for the long term. But the key question is whether they can hold on to the project?” the analyst says.
Bandar Malaysia will also serve as the gateway for the high speed rail line (HSR) to Singapore and become a central transport hub via Mass Rapid Transit lines 2 and 3, KTM Komuter, Express Rail Link, and 12 other highways.
Lim says that the development should attract MNCs due to its efficient transportation between Singapore and Bangkok.
“It gives us the best opportunity to build something that can attract foreign businesses here. Once the HSR is done its only an hour plus to Singapore. And if we have a connection to Bangkok, it is another two hours.
“This will open up a destination for them as their regional office in Bandar Malaysia.
“We need to bring that kind of tourism. With the spillover effect, it will help stop Malaysia’s brain drain of talents as well,” he says.
Below are extracts of a conversation with Lim and CREC project director Cai Zemin.
Q: Is the consortium obliged to make payments to 1MDB even if the property market is soft?
LIM: We will still have to make the payment. It’s a done deal but there’s a scheduled payment in place. We’re still in the final plans of the deferred payment.
Q: Who will be responsible for the relocation of the air base that’s currently occupying the land?
LIM: The IWH-CREC consortium will undertake the relocation process.
Q: 1MDB already has a masterplan for the area. What is the latest development?
LIM: They already have the basic masterplan. The Government has already intended to do all the integrated components.
Therefore we will do our part and assist in upgrading the plan to make it better.
With Cai’s expertise in the integrated transport hub, this is where everybody will contribute.
CAI: The Government has a good vision for this plan. They want to build this integrated transportation hub and we think it’s a good idea.
Q: Do you think the timing is right for such a huge project considering the soft property market?
LIM: Property always has its up and down cycle. Even if the market crashes, it will always recover. It has happened everywhere in the world. So there never is a right or wrong time, or best time to build and launch. You just got to plan for the people.
Q: How do you ensure the sales can be done without flooding the market?
LIM: If you look at our business model in Iskandar Malaysia, we will bring in investors who are world renowned because they have the capital. A lot of people has bad misconceptions about Iskandar. Of course, if we build everything in one go there will be glut.
If the market is good people will buy. If its not good, developers will just keep it because the longer it is, the more expensive the price of land becomes. For us, being the master developer for Bandar Malaysia, we will model after Iskandar Waterfront’s business plan. We will bring in local and foreign companies and they will have to follow our guidelines as have already planned for the underground city.
Q: Will IWH have a better chance of listing after this?
LIM: We did not list due to the market situation, which was why it was delayed.
We are still working on it and its still on track. Its only the matter of time until we do so.
Q: How big is the underground city?
LIM: The whole 486 acres will be an underground city.
Everything will be in the basement except for commercial buildings such as our towers and the landscape, which will be above the city. Bandar Malaysia will be five times bigger than KLCC and its park, which is about 100 acres altogether.
Related stories:
The race hots up for High Speed Rail project
Lim’s companies may draw interest
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