2017/24, 17 May 2017
The Bandar Malaysia project was launched in May 2011; a 197ha development under the 1MDB Real Estate arm that was meant to be a new business district of Kuala Lumpur as well as a major transport node, housing the terminus of the High Speed Rail (HSR) to Singapore and perhaps Bangkok. After the fallout from 1MDB, Bandar Malaysia fell under the auspices of TRX City Sdn Bhd, a wholly-owned subsidy of Malaysia’s Ministry of Finance (MOF). In December 2015, 60% of Bandar Malaysia was sold to a consortium comprising Iskandar Waterfront City (now Iskandar Waterfront Holdings (IWH)) and the China Rail Engineering Corporation (CREC), a Chinese state-owned company, at a signed value of RM12.35 billion (S$4 billion). IWH-CREC thus became the master developer for Bandar Malaysia. The projected market value of that agreement today, based on the illustrated selling price of RM2000 psf, is RM42 billion (S$13.6 billion).
On 3rd May 2017, the contract was terminated by the MOF on the grounds that IWH-CREC had not fulfilled its payment obligations and that it was unable to prove that it had the RM1.93 billion (S$625.46 million) required to move the Sungai Besi airbase. It was also reported that CREC had not attained the necessary Chinese regulatory approvals. While IWH-CREC disputed these claims, the media added to the confusion by reporting that Arul Kanda, the former Chairman of the Board of Bandar Malaysia and Director at TRX City Sdn Bhd had been removed due to a conflict of interest. At the same time, Lim Kang Hoo, Chairman and CEO of IWH was said to have fallen out of favour with the government due to his efforts to appeal to Chinese officials for their support. It was then announced that the RM7.41 billion (S$2.39 billion) deposit paid by IWH-CREC had been returned, paving the way for new invitations for investors in Bandar Malaysia.
While in China for the One Belt, One Road Summit, Malaysian Prime Minister Najib Razak met with Wan Jian Lin, the owner of Dalian Wanda Group, China’s largest real estate developer, and exhorted their ability to bring ‘something extraordinary’ to Bandar Malaysia. There was no signed confirmation of Dalian Wanda’s commitment to the project. After meeting with China’s Premier Xi Jinping, PM Najib clarified that the development model for the development would change, with the MOF retaining ownership of the land and possibly more than one Chinese entity involved.
But there is more to this than a mere monetary investment. Chinese contributions to Bandar Malaysia may come with a caveat for the High Speed Rail contract. With Singapore involved in the HSR, an open tender for the job will be expected; Japan has recently upped its bid with promises to ensure local business involvement and development. With the Malaysian elections looming, any episode can be used and/or abused for political positioning and possible electoral gain.
As we await further updates on this ongoing saga, several questions arise. What will be the real cost of ensuring that the Bandar Malaysia project takes off? Will any of this have any impact on Johor and the business associates behind IWH? How will the value of the project change given the new investment model and how accurate will that value be? The next few weeks may reveal the new investment arrangements for Bandar Malaysia, but the answers to these larger questions may not be so easily found.
Dr Serina Rahman is Visiting Research Fellow under the Malaysia Program at the ISEAS-Yusof Ishak Institute.
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