To dispel the confusion as to why the price announced by China Railway for a majority stake in the Bandar Malaysia project was significantly lower than the amount previously reported, 1Malaysia Development Bhd (1MDB) said the figure represents the net equity value of the mega development and not the land sale valuation.
Last Thursday, 1MDB announced that it had signed a deal to sell a 60 percent stake in Bandar Malaysia to a consortium consisting of the China Railway’s wholly-owned unit China Railway Engineering Corp (M) Sdn Bhd (CREC) and Iskandar Waterfront Holdings Sdn Bhd for RM7.41 billion. The former will own a 40 percent stake in the consortium, while the latter will hold the remaining 60 percent.
But according to the China Railway’s filing with the Hong Kong Stock Exchange on Sunday, the consortium will only pay RM5.279 billion for the stake, a difference of RM2.13 billion from the original amount. There was also no mention if the joint venture will shoulder any other liabilities under the deal.
To explain the disparity, 1MDB said in a statement that the lower figure only refers to the net equity value of the massive project and not the land sale valuation. The former is based on certain assumptions, which are still subject to further negotiations from January and June 2016 before the deal will be finalized.
“The starting point of any net equity value calculation is the land sale valuation of RM12.35 billion, of which the consortium’s 60 percent share equates to RM7.41 billion. This is the basis upon which the 10 percent deposit of RM741 million has been calculated and agreed upon by all parties,” said the government-owned fund.
1MDB also added the land sale valuation could be adjusted in the completion period during the first half of 2016, subject to whether or not certain related liabilities can be borne by the consortium.
But during a press conference last Thursday, 1MDB’s President and Group Executive Arul Kanda Kandasamy flatly stated that the joint venture will shoulder the obligations related to the project, including a RM2.4 billion Islamic bond and the RM2.7 billion relocation expense to the Royal Malaysian Air Force base.
The Bandar Malaysia development involves the relocation of the base so that the area can be used for luxury housing, retail space, and office towers as part of the government’s effort to attract more tourists and investors to Kuala Lumpur.