Minus HSR, whither Bandar Malaysia?

This article first appeared in The Edge Malaysia Weekly, on June 4, 2018 - June 10, 2018.
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NOW that the Kuala Lumpur-Singapore high-speed rail (HSR) project has been scrapped or postponed indefinitely, the question is, what is going to happen to Bandar Malaysia, the state-owned development where the terminus was supposed to have been located?

Will it be continued or will it be terminated and the land sold piecemeal?

Is Bandar Malaysia still an attractive proposition now that the terminus plan has evaporated following a decision by the Tun Dr Mahathir Mohamad-led Pakatan Harapan government to abort the RM110 billion HSR in a bid to reduce the massive debt accumulated by the previous Barisan Nasional administration?

Bangi Member of Parliament Dr Ong Kian Ming believes the Bandar Malaysia land is still a valuable piece of real estate in Kuala Lumpur as two mass rapid transit stations are to be located there.

“If developed properly and professionally, the long-term value of this piece of real estate can be unlocked and realised,” says Ong, who is also special officer to Finance Minister Lim Guan Eng, in an email response to The Edge.

Some observers believe the government could sell the land piecemeal to the highest bidder as it is located in a prime area in Jalan Istana and Jalan Sungai Besi with easy access to the city centre and the south.

It also has easy access to Putrajaya via the Maju Expressway, and the city centre through the underground SMART tunnel.

“The land is in a very prime area for future development, and many developers are eyeing it. Even without the HSR, the land will be able to fetch a high valuation, probably even exceeding the earlier valuation that IWH CREC [Sdn Bhd] was willing to pay,” says an observer.

In 2015, IWH CREC, a 60:40 joint venture between Tan Sri Lim Kang Hoo’s Iskandar Waterfront Holdings Sdn Bhd (IWH) and China Railway Engineering Corp Sdn Bhd (CREC), won an open tender for a 60% stake in the Bandar Malaysia project with a winning bid of RM7.41 billion. But about two years later, the Finance Ministry terminated the deal as it claimed the consortium had missed the deadline to put together a bank-backed guarantee for the balance RM4.5 billion deferred payment.

Although the project was retendered, little was known about its status because the ministry had kept mum about the bids.

But as it was touted as the HSR terminus in Kuala Lumpur, the development attracted a lot of interest from domestic and international investors and its value grew over time owing to the additional infrastructure planned for the area, including other rail-based public transport that would connect there.

According to Lau Zheng Zhou, research and business development director at the Centre for Public Policy Studies of the Asian Strategy & Leadership Institute (ASLI), Bandar Malaysia may not be as attractive minus the HSR.

“The project may lose its international appeal or narrative without MyHSR because it is supposed to be the ‘global green gateway’ for tourism, trade, culture and innovation,” he says in an email reply to The Edge.

“Without MyHSR, the land may lose its appeal, and the corporate buildings and offices may appear to be oversupplied.”

Lau also points out that the valuation of the site — reportedly around US$10 billion (RM43.3 billion) compared with a previous estimate of US$6 billion — will make Bandar Malaysia more expensive and require more deep-pocketed investors to support its infrastructure cost.

Even so, the government needs to realise the value of the land to pay off the RM3.69 billion of liabilities that Bandar Malaysia Sdn Bhd, the owner of the land, carries on its books, including a RM2.4 billion sukuk murabahah maturing in 2023.

The government may have to call for another request for proposal if it wants to invite tenders for the project as HSR is no longer in the picture. Calculations of the valuation of the land and its economic potential may be different now compared with a year ago.

However, there should not be a problem for the government to get investors to bid for the land, thanks to its strategic location, size and excellent connectivity to the rest of the country, even without HSR.

The 486-acre site — formerly an airbase called the Royal Malaysian Air Force Sempang — is among the last tracts of undeveloped land in Kuala Lumpur.

When the Bandar Malaysia idea was mooted by former prime minister Datuk Seri Najib Razak, its allure was that all the country’s various rail-based transport systems would converge there.

IWH CREC’s RM7.41 billion bid for a 60% stake in Bandar Malaysia had valued the entire tract at RM12.35 billion or RM583.37 psf. The consortium had also agreed to pay for the relocation of the RMAF airbase to Sendayan in Negeri Sembilan for about RM1.9 billion.

Prior to this, the Najib administration had sold the land to state-owned strategic development company 1Malaysia Development Bhd for a paltry sum of RM1.67 billion or RM72 psf.

1MDB is now embroiled in a global financial scandal with allegations of theft and money laundering of its funds amounting to billions of ringgit being investigated in a number of jurisdictions. The plunder of state funds was also a key reason voters threw out the Najib administration in the May 9 general election.

After being sworn in as prime minister, Mahathir said Putrajaya would review all mega projects that have been announced, tendered or awarded by the previous government.

However, scrapping mega projects, especially those that involve agreements  with and investments from another country, comes with its own set of challenges.

According to news reports, the government may be liable to compensate Singapore to the tune of RM500 million for calling off HSR, which Transport Minister Anthony Loke Siew Fook said could be revisited when Malaysia is on a sound financial footing.

Another mega project in Putrajaya’s cross hairs is the RM60 billion East Coast Rail Line, which is being built by China Communications Construction Co and funded by Chinese soft loans. Even though many doubt its viability, unlike HSR, some 13% of construction work has already commenced.

Says ASLI’s Lau, “You can almost say that there is a shift to the left in terms of the government’s policy direction. So, mega projects with the potential to generate income growth and trickle down to all segments of the population may be less popular.

“There isn’t much clarity on this but looking at the entire picture so far, it appears that this government’s priority is institutional and public-sector reform, followed by the welfare issues of the B40.”

 

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