Bandar Malaysia deal: China Railway Engineering does not admit to paying RM7.14 billion, or being party to sale ,while Arul & Kang Hoo agree that payment will be "deferred"

by Ganesh Sahathevan 

There is no agreement on price and time of payment,  and even the actual parties to the agreement to sell a 60% stake in Bandar Malaysia cannot be ascertained. The figure of RM 7.14 billion reported and accepted even by critics of 1 MDB  is illusory and even 1 MDB's Arul Kanda was not prepared to say when ,if ever,that sum will be paid.

Meanwhile, China Railway Engineering Corp , a Chinese state owned corporation that is supposed to be part of the  consortium   that entered into the deal with 1 MDB and its wholly owned subsidiary 1 MDB RE, is not admitting to be part of the deal and has instead got its Hong Kong listed subsidiary 
China Railway Group Limited (CRG) ,to make an announcement claiming that it and not its parent is the  party to the deal. Worse , CRG has even disputed the headline price of RM 7.14 billion , admitting only to a sum that is about RM 2 billion  less: 

 On 31 December 2015, the Joint Venture entered into the Share Sale Agreement with 1MDBRE, pursuant to which the Joint Venture will purchase 60% of the equity interest in BMSB held by 1MDBRE at a price of MYR5.279 billion,


The  Chinese appear to have deliberately said "Joint Venture" rather than "consortium" as has been widely reported and that terminology may be designed to allow them to exit  the deal,while collecting any payments due for engineering and construction works (for they are in essence a construction and engineering company).


Despite the headlines  that proclaimed  1 MDB had "sold " a 60% stake in the Bandar Malaysia project for RM 7.14 billion, thus putting in place the final part of a rationalization and debt repayment programme its chairman Najib Razak had promised would be done by the end of 2015, 1 MDB's CEO Arul Kanda was actually quite candid, in a manner of speaking,  in admitting that the main parts of the deal had yet to be worked out.As reported in THE STAR:

Under the terms of the sale and purchase agreement, 1MDB will receive a 10% deposit of RM741mil upon the execution of the sale and purchase agreement.
“The payment structure for the balance, whether it is upfront cash or deferred payments, is still being discussed."

That sentiment was echoed by the Tan Sri Lim Kang Hoo who leads to consortium that is supposed to be the buyer: 
As to why nothing might ever be paid, consider this explanation of how the land value is determined, published in THE STAR on 27 June 2015:
The land value does not come into consideration until 1MDB RE Sdn Bhd has provided enough information as to what can be done on the land, its plot ratio and this plot ratio will differ on different parts of the 486 acres.
Once the developer/s know what they can do with it, they will have to estimate the gross development value (GDV) based on the framework or components involved (determined by 1 MDB and the Government) , sources say.
It is unlikely that the Bandar Malaysia land has been converted since interested parties are to plan for the land’s content and components.
This means the interested parties will have to deduct expenses to convert the land in order to build whatever they need/want to build. This will be contributions to the authorities. It will also have to deduct the profit it would like to have.
From the GDV, the developer will then deduct the cost of construction (gross development cost) of whatever they are going to build.
(The final step)  is to (calculate the )  present value (of)  the net of the GDV - which is derived after deducting the cost and developer’s profit - over the likely development period. The balance will be the land value.

With so many variables, it would be all too easy for CRG  and other JV partners to make the case that the cost and profit components need to reconsidered, thus reducing the land value which is what the so-called sale price is meant to represent.For readers tempted to think that the JV partners will have to bear the burden of getting their sums wrong, think again, that is not how it is done in Malaysia,and especially in this case where the plans include a major fairyland component:"a big water feature".
The article below provides further clues as  to why the Bandar Malaysia  land sale and purchase agreement would be  so riddled with uncertainty as to make it unlikely that 1 MD will ever receive any money.
END 


Business News

Saturday, 27 June 2015

Consortium to build Bandar Malaysia

Impressive: Artist’s impression of Bandar Malaysia.
Impressive: Artist’s impression of Bandar Malaysia.
 
Consultant makes assumption based on huge size of land involved
PROPERTY consultancy CH Williams Talhar & Wong says Bandar Malaysia will likely be developed by a consortium of developers.
“We are looking at equity participation. The asset of this company is the land,” says managing director Foo Gee Jen.
He says the consultancy generally sees this form of cooperation in any mega development. There is no specific master plan yet.
“Generally, we want to be flexible in terms of development. We want creativity and entrepreneurship to thrive,” he says.
CH Williams is the transaction advisor for 1MDB RE Sdn Bhd which is the master developer of 486 acres located on the fringe of the city.
Earlier this week, CH Williams invited interested parties to submit expressions of interest to develop the land. The deadline for submission of interest is July 10 noon.
Foo says these expression of interests effectively set the stage for the development of Bandar Malaysia.
He says that considering “the acreage and gross development value of the land which will involve billions of ringgit”, a consortium of developers may have to come in.
Unlike the development of Kwasa Land Sdn Bhd’s 2,330 acres in Sg Buloh, which was sub-divided into plots, and KL Sentral which MRCB largely developed on its own, the development of Bandar Malaysia will take a different route.
Foo Gee Jen, MD WTW
Foo: ‘We are looking at equity participation.’
It will not be carved out. And neither will it be developed with a series of joint ventures with various developers, he says.
He says whoever comes in will have to calculate or make an assumption of the land value, make a bid on the land value on a gross basis, determine what sort of equity partnership and other criteria.
They will have to determine their own equity (with respect to their consortium partners), payment terms – cash up front, deferred payment terms – and their respective investments, he says.
The guiding factor for the development of the different components will be based on government policy and vision for Bandar Malaysia.
“It has to be in line with the government policy. That will be the guide. However, there is no hard and fast rules about the components. It depends on the strength of the partnership, their strong points and what will be marketable. A big water feature and a park, the high speed rail terminal, the two MRT lines, KTM Komuter terminal, Bus Rapid Transit and Express Rail Link are the catalyst. So the interested parties will have to use their entrepreneurship, planning skills for the land. They will have to come up with their own development content based on certain guidelines and numbers,” Foo says.
Broadly, it will be “a tender sort thing” to help with transparency. Foo says the request by his client to submit expressions of interest is the “first stage”.
“We will shortlist and make our recommendations to 1MDB RE, who will make their decisions. We, as transaction advisor, will be obliged to explain to the interested parties (the process of selection and evaluation). There will not be much information during this first stage,” says Foo.
The expectations of the land owner will be made known, the parties will know “the direction” the development is going to take.
“We are talking about investments that go into billions of ringgit so there must be a certain level of reasonableness (in the shortlisting process).
Stage 2 involves the shortlisted candidates signing non-disclosure agreements (NDAs) after which they will be given a lot more information in the Memorandum of Information.
After they have submitted their proposals, there will be a few months for evaluation.
“We hope to wrap things up by October of this year,” says Foo.
On the time line and duration for the completion of the project, Foo says this is a broad development which will take time. It is not possible to say that it will be completed in 15 to 20 years.
He says the 71-acre KL Sentral, the Kuala Lumpur City Centre (about 80 acres) took 15 to 20 years. The last parcel of KL Sentral is yet to be developed. The different parties occupying the land currently have yet to be relocated. These being City Hall’s air surveillance unit and the air base.
Factors like the country’s economic development, how the infrastructure work together, and other national and global factors are considerations. So the time line of 15 to 20 years is just a general guide line.
According to the advertisement on June 22, 1MDB plans to make Bandar Malaysia “a catalyst” for the transformation of Greater KL with its connectivity.
According to the advertisement which appeared in various media, the 486-acre master planned development will be an exemplary and mixed-use community of “the highest standards.”
1MDB RE is looking at four broad development content.
> Transport oriented development
It will be the best-connected address as upcoming KL-Singapore High-Speed Rail terminus will be located there. The Mass Rapid Transit, Line 2 and 3, KTM Komuter, Electrical Rail Line, Bas Rapid Transport will be there. There will also be links to major highway networks.
> Sustainable city living
Amenities will be sophisticated to suit future lifestyle
> Global Business hub
It will have world-class built environment and offices. There are plans for a dedicated commercial hub for creative industries.
> Tourism destination
With a planned waterfront promenade and vibrant retail boulevard, it aims to be a one-stop destination for shopping, festivals, culinary and culture.
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