1MDB gets ball rolling on its assets

-A +A

This article first appeared in The Edge Malaysia Weekly, on February 1 - 7, 2016.

AFTER a flurry of activity towards the end of last year, which saw 1Malaysia Development Bhd (1MDB) dispose of its power arm and Bandar Malaysia land, the state-owned fund is once again making a move to dispose of, or develop, its landbank.

1MDB is expected to launch tenders for construction jobs worth some RM450 million in the Tun Razak Exchange (TRX) land, located in the heart of Kuala Lumpur. TRX is being developed in a 60:40 partnership with Land Lease group, with the Australian company holding the majority stake.

Over in Penang, 1MDB is attracting parties interested in developing its Air Itam land, which has prompted the state-owned fund to begin a sale process for the land.

If successfully executed, these exercises would mark the final parts of 1MDB’s rationalisation plan, which is being spearheaded by its president, Arul Kanda Kandasamy.

Recall that Land Lease first purchased the 60% stake in the 17-acre TRX almost 1½ years ago. Since then, there has been very little activity. Hence, the issuing of tenders for construction work on the parcel is seen as a major milestone for the development.

According to industry sources, Land Lease is expected to invite tenders over the Chinese New Year for some eight packages for the construction of the basement. The estimated value of these packages is RM450 million, say sources.

It is not known which party will foot the bill, since the structure of the deal between 1MDB and Land Lease is kept under wraps. In fact, the exact price that Land Lease paid 1MDB for the 60% stake is not known.

Based on a price of RM3,000 per sq ft, Land Lease’s stake should be worth about RM1.3 billion.

Meanwhile, it is understood that 1MDB will begin the sale process for its 234-acre Air Itam land, for which it paid RM1.06 billion. The company has confirmed that it is issuing a request for proposal (RFP) after receiving several strong expressions of interest to develop the tract.

A check with 1MDB confirms that a “transparent and auditable process” will be undertaken to dispose of the tract.

It is noteworthy that the actual transaction value for the Air Itam land was RM1.3 billion but 1MDB only paid RM1.06 billion due to encumbrances. 

Also, the tract was independently valued at RM1.6 billion by CH Williams Talhar & Wong in 2013, when 1MDB acquired it.

The encumbrances stem from the fact that the tract is currently being occupied by a large number of squatters — an estimated 3,000 families — who have lived there for decades. On top of that, the tract is divided into many lots, some of which have a 14% undivided co-owner. 

This means that a third party owns a 14% stake in some plots of 1MDB’s land.

Meanwhile, 1MDB continues to seek buyers for its 318 acres in Pulau Indah, Selangor. The tract is adjacent to Port Klang Free Trade Zone land.

When asked, 1MDB officials tell The Edge that there are no plans to develop the Pulau Indah land at the moment, and that it is still up for sale.

Recall that in September last year, 1MDB — advised by Savills (M) Sdn Bhd — began the tender exercise for the land. 

1MDB had paid Tadmax Resources Bhd RM317.33 million for the tract in December 2014. The acquisition was 1MDB’s last before Arul joined the company in 2015 and started undertaking a rationalisation plan to reduce its debts.

Interestingly, the Pulau Indah land has been proposed as a site for power plant development multiple times, due to its proximity to the country’s primary load centre, the Klang Valley. Tadmax Resources — one of the seven bidders for Project 3B — submitted Pulau Indah as the site of its project back in 2013.

Subsequently, the land has been reported as a site for unsolicited power plant proposals submitted to the Energy Commission.