This article first appeared in The Edge Financial Daily, on January 7, 2016.

KUALA LUMPUR: As 1Malaysia Development Bhd (1MDB) received flak over its statement that the sum it quoted under the Bandar Malaysia deal is subject to revision, the state investment fund further clarified yesterday aspects of the deal with the consortium of Iskandar Waterfront Holdings Sdn Bhd (IWH) and China Railway Engineering Corp (M) Sdn Bhd (CREC).

In a statement yesterday, 1MDB said under the share sale and purchase agreement (SSA) executed between 1MDB and the IWH-CREC consortium, the consortium had agreed to pay RM7.41 billion (of which 10% or RM741 million is payable upon execution of the SSA) for its 60% share in the Bandar Malaysia project, based on a land value of RM12.35 billion.

The remaining 40% share in the project will be held by 1MDB or Minister of Finance Incorporated (MoF Inc), the statement read.

However, should 1MDB and the consortium agree on the costs and manage to procure the necessary consent for the project, the consortium will pay its 60% share of the costs, while the purchase consideration will be adjusted accordingly, 1MDB said.

“I.e. RM12.35 billion land value less RM1.9 billion Kuala Lumpur Air Force Base (PUKL) relocation costs less RM1.63 billion sukuk costs = RM8.8 billion of which [a] 60% consortium share is RM5.3 billion,” the statement read.

However, if the parties cannot reach an agreement over costs or if the necessary consent cannot be obtained, then the sale price of RM7.41 billion will be paid in full to 1MDB, which will still be responsible for the costs.

“In either scenario above, the purchase consideration of RM7.41 billion to 1MDB does not change. The only difference is whether 1MDB receives the amount in full, then pays for the costs, or whether the consortium pays for its share of the costs and remits the balance of RM5.3 billion to 1MDB,” it added.

CREC’s Hong Kong-listed parent China Railway Group Ltd had announced to the Hong Kong Stock Exchange that the sale valuation of the 60% stake in the Bandar Malaysia project is RM5.28 billion, of which CREC will pay RM2.64 billion of the share purchase price.

However, 1MDB, in its announcement last week on the deal, said the 60% stake in the 486-acre (196.68ha) piece of land was valued at RM7.41 billion.

1MDB clarified on Tuesday 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 RM2.7 billion contract cost for the relocation of PUKL and Bandar Malaysia’s RM2.4 billion nominal-value sukuk debt.

1MDB said yesterday the remaining PUKL relocation costs are currently estimated to be RM1.9 billion, as a chunk of the original sum for the relocation of PUKL had already been spent, while RM1.63 billion on the sukuk debt had been accrued as of Dec 31, 2015.

The transfer of these encumbrances and liabilities will require an agreement between the parties on the final costs of the PUKL relocation and the sukuk, as well as all relevant consent, including from the Malaysian government, sukuk investors and PUKL relocation contractor Perbadanan Perwira Harta Malaysia (PPHM), which is a wholly-owned subsidiary of Lembaga Tabung Angkatan Tentera. This is because PPHM has appointed 50 qualified bumiputera contractors as subcontractors to deliver various aspects of the construction.

These contractors have been approved by the relevant authorities, and construction is supervised by the relevant officials from the defence and home ministries, 1MDB added.

“It is important to highlight that PPHM, as the turnkey contractor, and the over 50 bumiputera subcontractors will continue to remain as the designated contractors and will continue to perform their roles exclusively, regardless of the final deal structure,” the statement yesterday read.

In response to criticism that Chinese parties were increasingly creeping in on its projects, 1MDB clarified that the majority stake of the project is very much held in Malaysian hands.

“The ultimate project ownership is 76% Malaysian and 24% Chinese,” it said.

This is because 54% of the ultimate ratio of the project’s ownership is held by the government, while the remaining 46% is held by the private sector.

Moreover, 40% of IWH is held by the Johor state government’s vehicle, Kumpulan Prasarana Rakyat Johor Sdn Bhd (KPRJ), and 60% is held by Tan Sri Lim Kang Hoo-controlled Credence Resources Sdn Bhd.

“This translates into a 40% stake held by 1MDB or MoF Inc, 22% held by Credence Resources, 14% by KPRJ and 24% by CREC,” 1MDB added.

1MDB also clarified that the high-speed rail (HSR) project to link Malaysia and Singapore is a separate project from the Bandar Malaysia project, and the sale of equity in the Bandar Malaysia project is not in any way linked to the eventual award of the HSR project, which is to be determined by the Malaysian and Singaporean governments.