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Wednesday, 30 December 2015

Almost at the end: The RM12.35b final step in the 1MDB rationalization

1MDB has just announced that it has signed to sell a 60% stake in the 486 acre Bandar Malaysia to a 60-40 consortium of Iskandar Waterfront Holdings Sdn Bhd and China Railway Construction Corporation (CRCC).

The deal was announced after an international open tender - which attracted initial interest from dozens of parties - called by 1MDB as part of its rationalization exercise.

IWH is the holding company for listed  company Iskandar Waterfront city Bhd and is 60% owned by tycoon Tan Sri Lim Kang Hoo and 40% owned by Johor Govt's Kumpulan Prasarana Rakyat Johor (KPRJ).

In Oct, 1MDB had announced that they have finally received planning approval from the govt for Bandar Malaysia, which includes a 4.05 gross development ratio and the planned HSR terminus, and two MRT stations.

40 per cent of the land is taken up by infrastructure such as transport facilities, parks, schools, and police and fire stations - leaving 60% of the land for development.

With the planning approval raising and giving certainty to the value of the land, 1MDB had initially expected a value of RM11.5b.

But after a keenly fought competitive tender, the IWH-CRCC consortium emerged the winner with the bid for 60% of Bandar Malaysia at RM7.41b - which values the project at RM12.35b.

3 1/2 years ago, 1MDB had paid an estimated RM1.6b (RM400m cash plus buying various pieces of land for MINDEF- including a 750 acre new RMAF airbase in Sendayan, a plot for a PDRM airbase in Subang and the 31 Royal Artillery Regiment base in Kajang.

On top of that, 1MDB also committed to pay RM2.1b to build and equip 8 military sites for MINDEF as compensation which brings the estimated cost of the land to RM3.7b.

But selling it for RM12.35b is a significant gain for 1MDB since it only had a RM4b valuation in their last financial statements.

This would mean that 1MDB could potential post a profit of RM8.6b out of this transaction.

After selling the 60% stake, the remaining 40% stake will be retained by 1MDB and will probably be eventually transferred back to the 1MDB's sole shareholder, the Ministry of Finance - thus Bandar Malaysia will be 76% owned by Malaysia and 24% owned by the Chinese firm.

And since the Johor state govt owns a 40% stake in IWH, this means that Bandar Malaysia will still be 54.4% owned by government.

It is anticipated that CRCC will be bringing in about RM3 billion of foreign direct investment into the country for this deal.

And if you add that to the Edra deal bought 100% by China' CGN group for RM9.83b (plus assuming debts of RM8b), that would mean a total of RM12.8b worth of foreign investments will come into the country just from 1MDB's last two deals.

This Bandar Malaysia deal is the 3rd major rationalization step for 1MDB and also fulfills Najib's promise to settle 1MDB by the end of this year - a move forced on Najib and 1MDB amidst heavy and sustained political attacks:
  1. Asset-swap deal with IPIC signed in May 2015 - RM16b
  2. Sale of Edra in Nov 2015 - RM17.3b
  3. Today's Sale of Bandar Malaysia - RM12.35b
All in all, those 3 deals means that about RM46b of value (either cash or assuming of debt) had flowed to 1MDB - which vindicates 1MDB's frequent claims that their asset is worth more than their debt.

It also proves that despite Tun Mahathir's frequent and ever-changing claims, RM42b or RM27b or billions didn't lesap - in fact there is a surplus!

After those 3 deals, 1MDB will still be left with 100% of the TRX project with remaining plots to be sold and construction well in progress, the RM300m Pulau Indah and the RM1.1b Penang land to be sold - meaning more billions to be gained too beyond the 3 milestones.

Here's a video of the TRX construction progress as at Nov 2015.

After today's signing, there would no longer be any fears that 1MDB will be a financial problem or sovereign risk for the government or for Malaysia anymore or any problems related to contingent liabilities related to 1MDB.

There should also be no more concerns that those bonds and loans given by KWAP, EPF, Tabung Haji etc would be at risk.

And hopefully, people finally realizes that no GST money was used to "bail out" 1MDB.

There's no doubt about it. Najib and 1MDB had worked hard and have delivered on their promise to "solve" 1MDB - exactly on schedule.

Here is wishing the Bandar Malaysia and TRX development all the best! Eventually, we will be left with two major developments that will help drive continued growth for Malaysia.

Here's a video giving you an idea of what TRX, the planned Islamic Finance Capital of the world, will look like when completed:

At this stage where the majority of the debt have been settled, 1MDB will still have:
1) 100% of TRX that will continue to be developed and bring economic gains and spin-offs to Malaysia
2) 40% of 1MDB with another effective interest of about 18% by Johor State Govt - that will continue to be developed and bring economic gains and spin-offs to Malaysia
3) delivered 8 military facilities to MINDEF
4) Pulau Indah and Penang land yet to be sold off/developed

All the above for initial RM1 million capital injection and two land deals.

It was never 1MDB's initial intent to have gone on to this rationalization plan but the continued political attacks on 1MDB, which prevented 1MDB from receiving a much-needed capital injection and unable to tap capital markets further, have forced the govt hands to do this.

For me and the Malaysians who wishes to see our economy not be affected by this in any way, we rather the debt be settled.

But in the end, what is important is the debt is resolved but many people will still be unhappy with 1MDB - which begs the question of what do they want?

That 1MDB's RM42 debt be resolved or for 1MDB's RM42b debt not to be resolved?

You can never please them.

In fact, many people would not like the RM42b debt to be settled and for it to remain. They will reject all sorts of moves to settle the debt and will give whatever reasons why this debt should remain unsettled - mainly because they do not want to be proven wrong or continue to use this RM42b debt as an excuse to slam the government.


  1. Its not what many people want but how much have they allowed themselves to be manipulated by the oppositions. I believe, in the next two years there's not much to talk on 1MDB anymore. Probably many of them who complaint on Najib and I1MDB will be buzy applying jobs on the commercial entities in the TRX business areas.

  2. Tahniah dan syabas kepada LSS kerana sejak dulu lagi telah berusaha gigih memberi analisa yg jelas dan lebih berwibawa berkaitan dgn isu 1MDB,walau pun sering di maki hamun oleh pihak tertentu.Sayangnya analisa yg cukup berguna dari LSS tidak di menefaatkan oleh individu tertentu sehingga menyebabkan individu tersebut kehilangan jawatan no 2 dalam negara,akibat terlalu bergantung kepada lapuran The Edge,akhbar kewangan yg pro pembangkang.Kesian dia.

  3. Keep up the excellent job LSS..

  4. Do you see GIC or Temasek Holdings, for example, running up debts and selling assets to pay off those debts?

    If 1MDB was convinced that a debt load of RM42 billion is sustainable, then why rush to "flog off" it's assets?

    After all, aren't sovereign wealth funds supposed to think and plan long-term - like over 10-20 years?

    1. Dear Anonymous,

      How much paid-up capital was injected by the Singapore govt into Temasek or GIC?

      Hundreds of Billions.

      How much paid up capital was injected by Malaysian Govt in 1MDB?

      RM1 million. (that's it).

      Like this you also want to draw comparisons?