1MDB: China Railway valuation of Bandar Malaysia deal based on net equity value of project

1MDB: China Railway valuation of Bandar Malaysia deal based on net equity value of project
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KUALA LUMPUR (Jan 5): 1Malaysia Development Bhd (1MDB) clarified today that China Railway Group Ltd’s filings with the Hong Kong stock exchange over the value of 1MDB’s sale of a 60% stake in Bandar Malaysia Sdn Bhd does not refer to the land sale valuation, but to the estimated share of the net equity value of the project.

In a statement today, 1MDB said the estimated share of the net equity value of the Bandar Malaysia project is based on certain assumptions, which are subject to further negotiations during the completion period between January to June 2016.

“The valuation contained in the announcement made by CREC (China Railway Engineering Corp (M) Sdn Bhd) to HKEx (Hong Kong stock exchange) refers not to the land sale valuation, but instead to their estimated share of the net equity value of the Bandar Malaysia project, based on certain assumptions, which are subject to further negotiations during the completion period between January and June 2016,” the statement read.

“The starting point of any net equity value calculation, is the land sale valuation of RM12.35 billion, of which the consortium’s 60% share equates to RM7.41 billion.

“This is the basis upon which the 10% deposit of RM741 million has been calculated and agreed upon by all parties,” it added.

1MDB announced last week that the 60% stake in the 486-acre (197ha) piece of land was valued at RM7.41 billion and is to be sold to a 60:40 consortium of Iskandar Waterfront Holdings Sdn Bhd and CREC.

The Edge Financial Daily, in its cover story today, had highlighted the difference in valuation of 1MDB’s 60% stake in the Bandar Malaysia project announced by 1MDB and CREC's Hong Kong-listed parent China Railway Group, noting that the RM7.41 billion figure does not include the liabilities and encumbrances that are attached to the plot of land.

China Railway Group had announced to the Hong Kong stock exchange that the sale valuation is RM5.28 billion, of which CREC will pay RM2.64 billion of the share purchase price. 

The Bandar Malaysia deal would come with strings attached, such as a RM2.4 billion sukuk and the RM2.7 billion cost to relocate the Kuala Lumpur Air Force Base (PUKL) to a new site, which includes the land acquisition and construction costs, the report stated.

However, the report stated that an estimated RM1.6 billion of the Bandar Malaysia sukuk has been drawn down, leaving the outstanding liability on 1MDB’s accounts to be less than the RM2.4 billion nominal value.

The report also stated that a chunk of the sum for the relocation of PUKL has been spent, and outstanding work is estimated to be about RM1.9 billion.

This raises the question about how much cash 1MDB will be able to raise from the sale of the Bandar Malaysia land, in view of how much of the liability and encumbrances, the consortium is able to assume.

1MDB said today that adjustments may be made to the RM7.41 billion land sale valuation during the completion period, depending on whether or not certain liabilities related to the Bandar Malaysia project can be passed to the consortium.

These liabilities include the remainder contract costs for relocation of the existing facilities and the Bandar Malaysia sukuk debt.

“The agreement executed between the parties on Dec 31, 2015 provides for a robust and objective mechanism to determine, amongst others, these matters, which all parties have committed to,” the statement read.

1MDB reiterated that it is now focused on taking the necessary steps, as well as to procure the relevant consents in order to implement the legally binding agreements executed in 2015 for the sale of its power assets parked under Edra Global Energy Bhd, the debt for asset swap with IPIC and the sale of 60% equity in the Bandar Malaysia project.