This article first appeared in The Edge Malaysia Weekly on December 23, 2019 - December 29, 2019

PROPERTY tycoon Tan Sri Lim Kang Hoo — the man behind the development of Iskandar Malaysia — is a zestful risk-taker, and the highly-­anticipated Bandar Malaysia looks to be his most ambitious project yet.

With an estimated gross development value of RM140 billion, Bandar Malaysia will be developed on the single largest piece of land in the heart of Kuala Lumpur over a period of more than 20 years. For those who are not familiar with Bandar Malaysia, it spans 486 acres of premium land in Jalan Sg Besi, the site of the former Royal Malaysian Air Force base.

After a false start in 2017, the massive development project was officially revived last week. TRX City Sdn Bhd (TRXC) — a wholly-owned subsidiary of Minister of Finance (Inc) — has entered into a deal with IWH-CREC Sdn Bhd to develop Bandar Malaysia.

IWH-CREC, a 60:40 consortium comprising Iskandar Waterfront Holdings Sdn Bhd (IWH) and China Railway Engineering Corp (M) Sdn Bhd (CREC), is acquiring a 60% stake in Bandar Malaysia Sdn Bhd (BMSB), the project’s master developer, from TRXC for RM6.45 billion.

The deal is anchored on the Bandar Malaysia land, valued at RM12.35 billion, and TRXC will retain a 40% stake in BMSB.

TRXC is a former subsidiary of 1Malaysia Development Bhd (1MDB), before it was transferred to MoF Inc due to mounting debt and its inability to fund the TRXC projects, including Bandar Malaysia.

Recall that in 2015, IWH-CREC won an open tender — in which 40 local and international companies took part — to develop Bandar Malaysia. The deal was abruptly terminated by the Barisan Nasional government in May 2017, following the unravelling of the 1MDB corruption scandal. Fast forward to April this year and the Pakatan Harapan government approved the reinstatement of the project.

It said the project was being revived after a “detoxification exercise” that proved that it could still generate economic benefits for urban development in the country. The rest, as they say, is history.

It is quite a story, how Lim — the executive vice-chairman and controlling shareholder of IWH — saw his fortunes change twice in just about two years. But the country’s 27th richest man, with a net worth of US$710 million, faces sceptics who doubt the viability of Bandar Malaysia as well as those who question the timing of the project.

Given that within a 6km radius there will be two skyscrapers — The Exchange 106 at the Tun Razak Exchange (TRX) and Merdeka PNB 118 — in addition to other commercial blocks that are looking for tenants, is this the right time to kick-start another mega project?

For one, former finance minister Tun Daim Zainuddin said he is worried that the Bandar Malaysia development could exacerbate the oversupply of property in the country.

“I am worried about the huge overhang. They have mentioned it could be over RM20 billion and there have been reports about this. I mean you do not develop unless you have buyers isn’t it?” Daim was reported by the Malay Mail as saying to the media at the Tunku Abdul Rahman Lecture at Shangri-La hotel last week.

Attracting MNCs

IWH’s joint-venture partner, CREC, is one of the world’s largest construction and engineering contractors. Over the decades, the conglomerate has built more than two-thirds of China’s national railway network and 90% of its electrified railway.

In a press statement last week, Lim reiterated IWH’s strong commitment to continually strengthen its collaboration with CREC and MoF Inc as a public-­private partnership entity in order to achieve the aspirations of “making Bandar Malaysia the game changer for the Malaysian economy”.

He is confident the development will serve as the country’s first integrated transit-oriented development that will attract a vibrant mix of local and international business travellers, tourists and residents.

Ideally, Bandar Malaysia will be efficiently connected via Keretapi Tanah Melayu, highways, mass rapid transit, bus rapid transit and major road networks.

Another catalyst is that Bandar Malaysia could bring substantial economic value to the nation and create thousands of jobs, particularly in the construction, knowledge, entrepreneurial and technology sectors.

More importantly, Bandar Malaysia aims to attract major multinational corporations (MNCs) and Fortune 500 global technology and entrepreneurial companies to establish their regional offices in Kuala Lumpur or relocate their operations here. This would foster the country’s digital innovation hub and other sectors such as finance, data, culture, enterprise and industry.

In fact, Finance Minister Lim Guan Eng, in his speech at the signing ceremony for Bandar Malaysia last week, revealed that Alibaba and Huawei have already shown interest in setting up hubs in Bandar Malaysia.

“This is in line with the government policy of attracting MNCs into Malaysia to invest in high-tech and high-value sectors and to raise Malaysia’s productivity and competitiveness amid a challenging global environment,” he said.

Nevertheless, corporate observers insist that in order to bring in global-stature companies and individuals from around the world to Bandar Malaysia, the government has to tailor incentives for the project.

Without that, they say, Bandar Malaysia will be “a gun without bullets”.

Improved terms

It is worth noting that, compared with the original agreement negotiated by the previous government, the new agreement that was signed last week, and negotiated by the current government, contains some improved terms (see table).

First, the amount of affordable housing units in the development will be doubled to 10,000.

Secondly, there will be an 85-acre park and recreational area, which will be a combination of a single 48-acre contiguous park and several satellite parks. This will serve as the green lung of Bandar Malaysia.

Next, in addition to the original deposit sum of RM741 million, IWH-CREC will pay an additional RM500 million as an advance payment. That works out to RM1.241 billion in total.

Meanwhile, the staggered payment terms have been shortened and accelerated from the original seven years to three years, to the benefit of the government.

It is worth noting that IWH is 63% owned by Lim’s private vehicle Credence Resources Sdn Bhd, while the remaining 37% stake is owned by Kumpulan Prasarana Rakyat Johor (KPRJ), the investment arm of the Johor government (see shareholding chart).

In other words, the Bandar Malaysia project is effectively 76% owned by Malaysians, of which 53% represents the federal and Johor’s interests. China’s state-owned enterprise CREC will only have an effective stake of 24% in the project.

It is also worth noting that the acquisition price of RM6.45 billion for a 60% stake in BMSB takes into account the valuation of the land of RM12.35 billion as well as the RM1.6 billion of sukuk issued by BMSB.

Including the portion of sukuk debt to be assumed, the consideration for the stake sale works out to RM7.41 billion.

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