'It was an arm’s length transaction'

This article first appeared in The Edge Financial Daily, on February 5, 2018.
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SIEM REAP: Bank Negara Malaysia’s (BNM) recent acquisition of 22.5ha of land from the federal government for RM2 billion was an arm’s length deal, governor Tan Sri Muhammad Ibrahim said, speaking out for the first time on the controversial deal.

“It was purchased at market value and it was an arm’s length transaction.

“And, to be clear about it, it was not the government that wanted to sell the land to us. We actually approached the government many months ago to buy the land,” he told The Edge Financial Daily in a brief interview on the sidelines of an event here last Friday.

Muhammad was in the Cambodian city of Siem Reap to witness the Asian Institute of Chartered Bankers confer an Honorary Fellowship award on the National Bank of Cambodia governor Chea Chanto.

It was the first time that Muhammad was commenting on the land purchase since BNM announced the acquisition in a press release on Jan 4. An arm’s length transaction refers to one which both buyer and seller act in their own interest and are not under any pressure by the other party.

BNM’s RM2 billion land purchase was the subject of controversy mainly because it came around the time that 1Malaysia Development Bhd (1MDB) — a wholly-owned unit of the Minister of Finance Inc — was required to make a final, sizeable payment of some US$600 million to International Petroleum Investment Co (IPIC) PJSC.

1MDB announced on Dec 27 that it had remitted the amount owed to IPIC in full, ahead of the Dec 31 deadline, but it was opaque on where it got the funds from.

Asked to comment on market speculation that the government had used the cash from its sale of the land to BNM to make the payment to IPIC, Muhammad said: “That is the government’s business [on how it uses the proceeds]. It’s best to ask the government, not us. As far as we are concerned, we wanted to buy the land for our own development.”

Moving to quell the speculation, he went on to add: “We are basically the one who requested the government to sell the land to us … [It was] not the government who wanted to sell the land to us. We had been trying to convince the government for many, many months [to sell us the land], and it so happened that last November or December, the negotiations between us came to fruition, [and] we are quite happy to acquire the land at that price.”

1MDB in its press statement last year said that the cash it paid IPIC was from the proceeds of its ongoing rationalisation programme. However, it did not reveal details, such as whether they were assets or investment units, for instance, that it sold to raise cash for the payment.

BNM’s land purchase was also puzzling on several counts, with property industry observers pointing out that, firstly, it was rare for a government agency to buy land from the federal government and, secondly, the transaction was done at market price, The Edge Malaysia weekly reported in its Jan 8 issue.

Observers questioned why BNM had to pay market price for the land when it was to be used for educational purposes. The government has been known in the past to transfer land to public universities at minimum cost. At RM2 billion, the price of the 2.43 million sq ft parcel works out to RM823 psf.

BNM said the land would be used for the relocation of the Global Islamic Finance University (INCEIF) and the International Shari’ah Research Academy for Islamic Finance, and as an educational hub for the financial services industry.

According to Muhammad, it is not out of the ordinary for BNM to acquire land.

“The acquiring of land is nothing new to us. We have acquired many [tracts of] land over many decades. It’s not as if it’s something that we have done for the first time. And when we acquire land, we acquire at market and hence, we make sure that it conforms to the best market practices and norms,” he said.

“If you look at the map of the land, it is actually contiguous to our Sasana Kijang complex. We promote a lot of training and development, and [part of that] is to turn INCEIF into a bigger and greater university for Islamic finance. They will use that new land as a campus for them,” he added.