This article first appeared in The Edge Malaysia Weekly on January 8, 2018 - January 14, 2018

THE Minister of Finance Inc (MoF Inc) is believed to have acquired a 51% stake in Mulia Property Development Sdn Bhd, which is developing a 3.42-acre parcel of land, including the 106-storey skyscraper The Exchange 106 at Tun Razak Exchange (TRX). TRX is one of the two major development projects under 1Malaysia Development Bhd (1MDB). The other is Bandar Malaysia, which is less than 5km away.

The stake in Mulia Property is said to have been acquired from Indonesia’s Mulia International Ltd, a unit of Indonesia’s Mulia Group. While it is not clear how much MoF Inc paid for the controlling stake, it is understood that a debt facility from HSBC Bank has been taken for the acquisition.

“All indications are that MoF Inc or some government-linked entities have bought a controlling stake in Mulia Property. It was done two to three months ago,” an executive familiar with the matter tells The Edge but he declines to divulge details.

Word in the market has it that with the challenging environment, it was difficult for the Mulia Group — the flagship company of billionaire businessman Eka Tjandranegara — to obtain funding.

Another executive familiar with the deal says those helming Indonesia’s Mulia Group are shrewd businessmen, without elaborating further.

Nevertheless, this means that the building of The Exchange 106 — previously known as TRX Signature Tower and dubbed a major foreign investment — is now a Malaysian initiative, with Mulia Property being mostly Malaysian owned. RAM Credit Info data shows that the company, which was previously wholly owned by Mulia International Ltd, now has a 51% shareholder called MKD Signature Sdn Bhd.

A filing on MKD Signature reveals that it is a RM2 company. Its directors are Rashidah Mohd Sies, Datuk Asri Hamidin@Hamidon and Datuk Sri Mohmad Isa Hussain — all officers of the Ministry of Finance. Rashidah is a deputy secretary (commercial sector) at the government investment companies (GIC) division and Asri is the secretary of the division, while Mohmad Isa is the deputy secretary general (investment).

MKD Signature also has an unsatisfied RM2 billion charge created on Sept 15, 2017, from HSBC Bank Malaysia Bhd. It is wholly owned by Sentuhan Budiman Sdn Bhd, in which Asri, Mohmad Isa and another MoF official, secretary of strategic investments Datuk Yusof Ismail,  are directors. Sentuhan Budiman is equally owned by Mohmad Isa and Datuk Ahmad Badri Mohd Zahir, who is undersecretary of strategic investment division at the Ministry of Finance.

To recap, the 70-acre TRX was divided into several plots by master developer TRX City Sdn Bhd (formerly known as 1MDB Real Estate Sdn Bhd) and the TRX Signature Tower was to be the iconic portion of the development.

The Mulia Group bought the 3.42-acre parcel and development rights to Signature Tower from TRX City for RM665 million in May 2015.

Mulia Group then awarded the construction of the tower to China State Construction Engineering Corp Ltd (CSCEC)’s unit China State Construction Engineering (M) Sdn Bhd. When it is ready in the middle of the year, the tower at 492m will be the tallest structure in Southeast Asia and among the 15 tallest in the world. The Chinese company said The Exchange 106 is the “tallest building undertaken by Chinese contractors in overseas markets”.

And now, with the reinforced concrete core wall in place and [construction] reaching 450m above ground, a new shareholder has emerged.

The business sense of the acquisition by the Malaysian party would depend on how much it paid for the 51% stake.

While the construction costs of The Exchange 106 is unknown, one could look at Permodalan Nasional Bhd’s KL118 Tower, which is being built at a cost of US$505 million, or RM2.12 billion, by the consortium of South Korea-listed Samsung C&T Corp and its local partner, UEM Group Bhd.

So, how much of the RM2 billion HSBC facility did MKD Signature use up? There is also the issue of the soft property development market that Mulia Property and other developers have to contend with.

As for Mulia Property being in financial difficulties, RAM Credit Info says that for the year ended Dec 31, 2016, the company suffered an after-tax loss of RM3.52 million from RM404,000 in revenue. As at end-2016, the company had total assets of RM994.24 million and total liabilities of RM1.08 billion. It chalked up accumulated losses of RM82.3 million.

Another foreign company that owns land in TRX is Australian outfit Lend Lease Corp Ltd, which together with TRX City, is developing 17 acres as a lifestyle quarter.

Local companies that have interest in TRX are Affin Bank Bhd, which bought a 1.25-acre plot three years ago, pilgrim fund Lembaga Tabung Haji, which acquired a 1.6-acre plot in 2015, and WCT Bhd, which is being paid partly in kind — 1.7 acres of land — for construction work at TRX.

 Meanwhile, HSBC is investing US$250 million or RM1.06 billion to build its headquarters in TRX. Retirement fund Kumpulan Wang Persaraan (Diperbadankan) or KWAP has indicated that it may invest in TRX, but the investment has yet to materialise.

So, has MoF Inc acquired a 51% stake in Mulia Property? It appears so, based on company documents and the fact that senior MOF officials are on the board of MKD Signature as well as on Mulia Property’s board. To date, MoF has not disclosed its involvement, giving the impression that The Exchange 106 is a 100% Indonesian investment.

MOF should be transparent and disclose how much it is putting into the project.  As the late former British Prime Minister Margaret Thatcher once said, there is no such thing as public money; there is only taxpayers’ money.

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