The fight for what is possibly the most valuable piece of development land in Kuala Lumpur had attracted top local and international names but is ending as a tussle between two big local property tycoons, respectively backed by two rising powers of the East – the Chinese and the Arabs.
Insiders reckon that inching closer to winning the bid to buy 60% interest in Bandar Malaysia Sdn Bhd (BMSB), which is the project owner and a wholly owned subsidiary of 1MDB Real Estate Sdn Bhd (1MDB-RE), is Tan Sri Lim Kang Hoo together with his partner China Railway Engineering Corporation (CRECG), now China Railway Group Limited (CREC).
The party trying to outbid Kang Hoo is believed to be a Qatari state-backed consortium. It was reported that this group comprised a local company belonging to property baron Tan Sri Desmond Lim of the Pavilion and Malton groups and a Qatar investment company.
Bandar Malaysia is a 486-acre redevelopment project at the old airport site in Sungai Besi.
Another top contender is said to be Permodalan Nasional Bhd (PNB), but its offer is said to be low and considered to be out of the game.
CH Williams Talhar and Wong Sdn Bhd (WTW), the company with the mandate to get the best deal for 1MDB-RE, has stated that there are only two preferred bidders after the offer date closed. WTW has also said there are no bids after the offer date closed.
The answer from 1 Malaysia Development Bhd (1MDB), the owner 1MDB-RE, with regards to the entry of a third party from Qatar does not give away any clues.
The government fund says in its email to StarBizWeek: “On Nov 13, 2015, 1MDB transaction adviser WTW announced that, in relation to the Bandar Malaysia monetisation tender process, 1MDB has received two final, binding and funded bids from development partners for the proposed sale of the 60% equity in BMSB.
“1MDB is currently in ongoing negotiations with the relevant parties and have publicly announced an intention to execute a sale & purchase agreement by 31 December 2015. As negotiations are ongoing, it is not appropriate for us to comment further on this matter. However, we commit to make an announcement in due course.”
1MDB debt matters
While the Qatari group’s bid is in the background, sources say that it is not the favoured one now.
“Also the current leadership in that country may not be keen on ventures in this region as it was just a few years ago when they entered into a partnership to develop the Pavilion KL Mall,” says one executive familiar with the situation.
Whatever the case, the outcome of who will hold the rights to jointly develop Bandar Malaysia would be out in the next two weeks to keep in line with the promise made by Prime Minister Datuk Seri Najib Tun Razak to resolve the debt issues of 1MDB by year-end.
The deal is important to 1MDB because it forms part and parcel of its debt rationalisation plan that has a deadline of 31 December this year. Bogged down by a mismatch in its financing, 1MDB, the brainchild of Najib has cashflow problems to service its debts of RM42 billion as at 31 March 2014.
So far, it has managed to ink a deal with China’s state-owned China General Nuclear Corp (CGN) to sell its power plant for US$9.83 billion. The offer, according to industry executives, far exceeds the next best proposal on the table, which came from Tenaga Nasional Bhd.
More importantly, it allows the federal government owned fund to come out of its poorly planned power venture without having to take a hit on its books.
It is something that would have been inconceivable six months ago because most of the power plants under 1MDB’s Edra Global Energy Bhd were either at their tail-end of their concession or have been in operations for a long time, leaving little value for future upside.
The executives say the CGN group were prepared to pay a high price for two reasons – first, it was allowed to hold 100% equity and, secondly, it was looking to go into more deals with 1MDB.
The 100% equity sale of the power plants set a precedent in the Malaysian history of concession assets because the rule previously was that foreigners were restricted to only 49%. 1MDB was the first to get the go ahead for a 100% sale.
The HSR factor
There are critical pull factors that make the stake in BMSB a coveted asset.
Apart from being a property play, BMSB offer an excellent opportunity for its owners to possibly get a piece of action in Malaysia’s most sought-after infrastructure project in the next two years, the High Speed Rail (HSR) link running from Kuala Lumpur to Singapore.
The station in Kuala Lumpur will be located in Bandar Malaysia, which is an attraction because it is slated to be a transportation hub. The features to be prominently sold in Bandar Malaysia are its connectivity to Singapore and other key local destinations through a network of local transportation links.
In the region, China has taken the lead when it comes to HSR projects.
Two months ago, it beat a strong challenge from Japanese companies to win the mandate to undertake the project in Indonesia. Malaysia is the next spot for the big battle between the “super powers” of HSR.
Although, several European companies are also expected to join the fray for the HSR, China is certainly a force to be reckoned with especially after its victory in Indonesia.
China is also set to undertake the last stretch of the electrified double-track railway project (EDTP) from Gemas to Johor Baru under a government-to-government initiative. The project collaboration was announced in 2011 by Najib during the visit of China’s former prime minister Wen Jiabao to Kuala Lumpur.
But the project has not taken off yet.
It was confirmed just two days ago that CREC will be awarded the EDTP to complete the entire EDTP network to Padang Besar, a border town between Malaysia and Thailand.
So far there is nothing to link the development of Bandar Malaysia to HSR because these are two entirely different projects managed by two separate entities of the federal government. The Government has already set up a special-purpose vehicle to undertake the HSR project.
“But having a foot into the entire development of Bandar Malaysia would allow for an effective costing of the HSR. Building the HSR hub is one of the more expensive items in the entire project. So, having some hold over the land ownership could allow some form of averaging down the cost,” says a transport consultant with experience in the planning of the KL Sentral station.
China is eyeing for a foothold in Bandar Malaysia through its state-owned CREC (via CRECG), which has formed a partnership with Kang Hoo’s Iskandar Waterfront Holdings Bhd (IWH) to bid for the majority stake in BMSB.
IWH is a major player in the Iskandar Malaysia development in Johor.
As one of the two final candidates shortlisted for the deal, this 60:40 China-Malaysia partnership had reportedly put in about RM150 million as deposit last week shortly after it received a letter from 1MDB-RE stating that it is a preferred bidder to be the equity investor and development partner of Bandar Malaysia.
This happened amid information that the race for the Bandar Malaysia deal is developing into a three-way fight, with the emergence of a Qatari state-backed consortium that has offered a higher valuation than that offered by CREC-IWH.
CREC-IWH is said to have valued the entire 486-acre project of Bandar Malaysia at RM13 billion, or RM615 per square foot (psf). This means the consortium would have to fork out about RM7.8 billion for the 60% interest in BMSB.
The speculation is that the Qatari state-backed consortium, is said to be offering RM15 billion, or RM709 psf for the Bandar Malaysia project. So, for a 60% stake in BMSB, this consortium will have to pay RM9 billion.
Herein lies the contention: Although the valuation offered is higher, the bid by this group came in only after the closing of the tender process and after 1MDB announced it had already shortlisted two final bidders for the project.
The practice of opening up for bids when the date is closed is seen as unfair.
Nevertheless, sources say 1MDB is still obliged to look into the new bid from the third group. This is especially so when the valuation offered is higher, as 1MDB views the entry as a private sale, and it has the choice.
“This is a private sale, and the choice is solely the right of the vendor (1MDB); of course, it would want to get the best price for its asset,” a market observer notes.
The Qatari consortium has yet to put in even the deposit for the deal.
According to documents calling for tenders, bidders are obliged to first put in an earnest deposit of 2% of the total proposed acquisition price within seven (7) days after being notified as a preferred bidder. The remainder 8% (to make up 10% as the total required deposit) is to be paid upon execution of the share sale and purchase agreement.
The RM150 million put in by CREC-IWH matches the 2% required as first deposit payment for the Bandar Malaysia deal.
“In any case, China is the only party in the world right now that can afford to pay the highest price for any asset it wants to buy any new bid may not necessarily be able to trump China’s offer, considering its capability to hike its offer any time if it truly wants a piece of the asset,” a banker says.
“Conversely, its counterpart from the Middle East is highly dependent on oil prices, which are now still in the doldrums, and could potentially hurt the country’s economy,” he adds.
Foreign-exchange-reserves-rich China has been on a global buying spree since 2008. Through its various state-owned companies, the country has been acquiring crucial assets from commodities such as oil and gas to banking and properties and land in various countries.
BMSB has already secured an average gross plot ratio of 4.05 across the 486-acre Bandar Malaysia site under a planning approval for the project from the local authority Dewan Bandaraya Kuala Lumpur (DBKL).
The redevelopment project for the land is expected to kick off around 2017, with full completion expected within the next 15 to 20 years.
With BMSB clearly the biggest property development venture in the offing in Kuala Lumpur, it is no wonder that it is highly contested for, having pulled in the interest of businessmen and groups knowing this is an opportunity in a life that should not be missed.
News Source: The Star, 12 December 2015
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All images courtesy of Bandar Malaysia Website.