THE revived Bandar Malaysia project, which was previously linked to the 1Malaysia Development Bhd (1MDB) scandal, is finally taking off.
On Tuesday, a signing ceremony will take place to formalise agreements between the local and Chinese parties for the multi-billion-dollar project, with Prime Minister Tun Dr Mahathir Mohamad slated to officiate the event.
Among other VIPs said to be attending are China’s ambassador to Malaysia Bai Tian and Finance Minister Lim Guan Eng.
On that day, an updated plan of the project, which is to be built at the former Sungai Besi airport site in Kuala Lumpur, will be known from what had been proposed earlier.
For instance, there will be an affordable housing element in the project and greater participation of local companies in the construction process.
Bandar Malaysia, which will be developed under the public-private partnership model, is a township development project with an estimated cumulative gross development value of RM140bil.
The controversial project was abruptly terminated in May 2017 because the purchasing parties had failed to fulfil their payment obligations.
In December 2015, the Ministry of Finance (MoF) – under the previous administration – sold off a 60% stake in Bandar Malaysia to the IWH-CREC consortium, comprising Iskandar Waterfront Holdings Sdn Bhd (IWH) and China Railway Engineering Corp (M) Sdn Bhd, to be the project’s master developer.
But that deal was called off over the failure to fulfil payment obligations.
The remaining 40% stake in the project is held by the MoF.
In addition, the future of the project remained in limbo for some time, following a series of cost-cutting measures undertaken by the Pakatan Harapan government when it came to power in May last year.
Several China-financed projects, such as the East Coast Rail Link (ECRL), were suspended as the new government sought to improve its finances and reduce dependence on Chinese debt.
However, in April this year, the Pakatan Harapan government announced that the project would be revived, after having negotiated for better terms.
The IWH-CREC consortium –which was re-awarded the project – committed to making an additional advance payment of RM500mil, on top of the original deposit sum of RM741mil.
Last month, IWH secured a RM371mil financing facility from CIMB Bank Bhd to part-finance the investment by the consortium.
IWH-CREC is a 60:40 joint venture between IWH and China’s state-owned CREC.
Businessman Tan Sri Lim Kang Hoo holds a 63% stake in IWH, while Kumpulan Prasarana Rakyat Johor Sdn Bhd owns the remaining 37%.
Then and now The environment when the old deal was struck in 2016 was different from the current space now.
This is the reason for the prolonged delay in coming up with a final agreement, say some.
Firstly, the previous agreement was signed when the government was headed by former Prime Minister Datuk Seri Najib Razak, who is now facing a barrage of criminal charges for allowing the 1MDB debacle.
Najib, then under pressure, had set a deadline of end-2015 for 1MDB, which was headed by Azrul Kanda Kandasamy, to come up with a deal on Bandar Malaysia.
The sale of land was a vital component for Azrul Kanda, better known as Arul Kanda, to resolve 1MDB’s RM30bil debt problem.
One of the main issues that was overlooked is Bandar Malaysia’s liability of RM2.4bil.
The debt came about to raise money for the relocation of the army base and other facilities at the former Royal Malaysian Air Force base in Sungai Besi.
When Bandar Malaysia issued the debt papers, Retirement Fund Inc (KWAP) subscribed for the papers.
The proceeds were meant for relocation works at the Sungai Besi base, which was mandated to BOUSTEAD HOLDINGS BHD.
“Under the previous government, the consortium did not have to worry about such matters because the Najib administration was desperate to strike a deal.
“The new administration wants the consortium, as the new major shareholder of Bandar Malaysia, to handle the liabilities,” says an executive familiar with the negotiations.
Secondly, the question of meeting the obligations for the RM2.4bil was a sticky point.
“If there is a cash call from shareholders, the government, as a 40% shareholder has to come up with its portion.
“However, the government is in no position to put more money into the entity,” says the executive.
In the immediate term, the only source of income for the consortium is to sell some parcels of the land until it is ready for development.
Nonetheless, property market conditions are soft.
This then leads to the third issue that held up negotiations – does the government want to keep a 40% stake in an entity that is saddled with debt and land that can be developed over the long-term? “The other option is whether the government should sell its 40% to the other partners and sit back,” says the executive.
But the option to sell the 40% stake to the joint venture of IWH-CREC would be politically unacceptable.
“The fear was of allegations that the current government will come out looking worse than the previous administration, by not retaining any stake in the project that would easily last 50 years,” says the executive.
Apart from that, a previous key concern of the Bandar Malaysia project was that a substantial portion of work could be outsourced to major foreign corporations.This concern was allayed during the recent tabling of Budget 2020, which stated that there would be an increase in bumiputra participation throughout the project.
Hence, more local companies will stand to benefit from the substantial construction work required.
The quantum of local content in the construction process, though, has not been ascertained.
The 486-acre will include a people’s park and an additional 5,000 units of affordable homes – an element that was introduced to the project by the new government.
The previously planned underground integrated city, which is expected to be the world’s largest, will also proceed according to plan.
Apart from housing a shopping mall, indoor gardens and a financial centre, the underground city will include a high-speed rail terminal.
The special incentives for overseas companies to establish their office in Bandar Malaysia would likely remain, spurring sentiment for the project.
Next week, all eyes will be on the final and finer details that are expected to be announced during the signing ceremony.
Particularly, there could be updates on the status of the HSR, which remains to be finalised.
On the stock market, IWH’s 37.72%-owned public-listed firm Iskandar Waterfront City Bhd saw its share price jumping 16% to RM1.02 since Wednesday, signalling renewed interest in the Bandar Malaysia project.
Ekovest Bhd, another company linked to Lim, rose some 13% in the last three days to close at 90.5 sen yesterday.
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