Funding for TRX Lifestyle Quarter on the line

This article first appeared in The Edge Financial Daily, on May 17, 2018.
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KUALA LUMPUR: Although previously close to securing between RM2 billion and RM3 billion worth of financing for its Lifestyle Quarter in the Tun Razak Exchange (TRX) development, TRX City Sdn Bhd and its joint-venture (JV) partner Lendlease Corp Ltd appear to be having difficulties locking down funding.

According to sources, six banks had initially pledged their support for the 17-acre (6.88ha) mixed development, including local giants Malayan Banking Bhd and CIMB Group Bhd as well as several foreign-owned banks such as HSBC Bank Malaysia Bhd and Standard Chartered Bank Malaysia.

Affin Bank Bhd was also said to be backing the project, which has an estimated development value of RM8 billion, with plans to channel funds through a syndication.

However, it seems that the local banks are now jittery about the prospects of the development despite ongoing “accelerated works”, said a source close to the project.

The person, who declined to be named, shared that while the foreign financiers show little sign of backing out, one of the conditions for funding of the development is the commitment of a local bank.

It is worth noting that HSBC was the first foreign bank to announce that it had secured a spot in the 70-acre TRX development. The London-based bank had committed US$250 million as at June last year to build what it hopes to make its hub in Southeast Asia there.

Affin Bank is also setting up a 43-storey office tower there after buying a 1.25-acre plot for RM255 million in 2015.

This is not the first time that local banks have been hesitant about putting their money behind the Lifestyle Quarter. A report by The Edge Malaysia weekly in July last year cited sources as saying that the local financiers might have been deterred by the weak property market and the fact that TRX City’s former parent is 1Malaysia Development Bhd (1MDB).

But as recent as two weeks ago, the source said that the confidence of local banks had been boosted by the presence of Lendlease, an Australia-based construction, property and infrastructure firm. Lendlease, which has a market value of A$10.62 billion (RM31.64 billion), holds a 60% stake in the JV while TRX City holds the remaining 40% stake.

When contacted, Lendlease declined to comment on the details of financing for the projects.

However, the group said that it placed major emphasis on working in partnership with the government to deliver projects which have a positive impact on the country.

“We look forward to working with Malaysia’s new government, and will seek to engage with the ministry at the earliest opportunity,” Lendlease said in an email response to The Edge Financial Daily.

In September 2017, Lendlease announced that it had received all relevant approvals for the next stage of the Lifestyle Quarter’s development. It had at the time already completed excavation and progressed onto piling works for the retail component.

“The Exchange TRX — the retail component — has to date leased 26% of its retail space,” Lendlease had said then, adding that it is expected to open for customers by 2020.

To recap, TRX City roped in Lendlease in June 2014 to be a major investor and partner to develop the Lifestyle Quarter.

A luxury hotel, six residential towers and a large-scale retail outlet and a park, among others, are planned for the development.

In April 2017, TRX City, formerly known as 1MDB Real Estate Sdn Bhd, was bought over by the finance ministry (MoF), giving the ministry control not only over the Lifestyle Quarter but the entire 70-acre TRX development.

The fate of the development, which has an estimated RM40 billion gross development value, may be hanging in the air now that Pakatan Harapan is in power. DAP parliamentarian Tony Pua had called the purchase of the 106 Exchange tower a “bailout” of 1MDB by the MoF.

The ministry gained control of the tower via its acquisition of a 51% stake in Mulia Property Development Sdn Bhd from its Indonesian parent, Mulia Group for RM665 million in July 2017.

PKR vice-president Rafizi Ramli claimed that Mulia bought the 3.42-acre land at a discounted price of RM403.9 million.

Meanwhile, newly elected PKR lawmaker Fahmi Fadzil had in July 2015 called for a review of Affin Bank’s land purchase. He cited conflict of interest as Tan Sri Lodin Wok Kamaruddin, the former deputy chairman of Affin Holdings Bhd — the bank’s holding company — was also the chairman of 1MDB’s board of directors.