Three possible reasons for termination of Bandar M’sia deal

A QUESTION OF BUSINESS | Whatever the reasons for the abortion of the deal to develop Bandar Malaysia, one thing is clear - this is part of the unravelling of serial misdeeds and allegedly crooked manoeuvring at 1MDB.

In this case, the deed is doubly compounded for there seems to be no proper rationale - devious or otherwise - for the termination of the deal which stands up to proper scrutiny.

There are three lines of thought out there over the ending of the deal - the first is that elections are around the corner and therefore it does not pay to be seen to be too close to China so as to keep favour with the Malay electorate. Dr Mahathir Mohamad has said many times over that Malaysia is selling itself out to China. Thus, the aborted deal may be reinstated at a more opportune time - if the BN is re-elected.

The second reason given is that China is pushing hard for assured deals in return for their investment and help in Malaysia, which in addition to a bevy of large projects would also include the high-speed rail link to Singapore.

The story goes that Malaysia is reluctant to give an assurance on this as there might be an open tender, with Singapore involved. If that is true, it might indicate a major rift with China. It would be unlikely that is what Malaysia wants at this stage as it would jeopardise many other deals. It would rather negotiate differences.

The third is that if this deal is aborted, then it can be given over to another crony who is closer to the current leadership - the name that is bandied about is Desmond Lim who is associated with the Malton group, WCT and Ekovest, amongst others. He is said to be particularly close to the prime minister’s wife.

Considering that Lim does not have the kind of money or is able to develop the kind of projects that will save 1MDB and cover any holes it may have, it would be a rather risky proposition right now to annoy the China authorities and risk other deals, which if overpriced, can help raise money for 1MDB.

Perhaps the first one is probably the most rational under the circumstances which means somewhere further down the line, and if BN wins the GE14, the deal would be revived.

Currently, the Minister of Finance Inc (MOF Inc) handles Bandar Malaysia after it took over from 1MDB in December 2015, through TRX City Sdn Bhd, formerly 1MDB Real Estate Sdn Bhd TRX City, announced the deal had been aborted after the consortium to develop Bandar Malaysia on some 426 acres of land at the former air force base in Sungai Besi did not make unspecified payments.

"This is because, despite repeated extensions being granted, IWH-CREC (Iskandar Waterfront Holdings-China Railway Engineering Corp) failed to meet the payment obligations outlined in the conditions precedent under the SSA (share sale agreement),” TRX City said.

IWH is controlled by property developer Lim Kang Hoo, who is said to be close to the Johor sultan, while CREC is the Malaysian subsidiary of the huge state-owned group China Railway.

"As a result, the share sale agreement between the parties stands null and void with immediate effect," it said.

“Looking ahead, given a significant appreciation in the value of the Bandar Malaysia land, TRX City’s sole shareholder the Ministry of Finance will now be retaining 100 percent ownership of the site to ensure that the Malaysian people benefit from its development in its entirety.” Note the assurance that Malaysians will benefit from the development.

“TRX City will immediately be inviting expressions of interest for the role of master developer of Bandar Malaysia, with full ownership being preserved by the Ministry of Finance,” it added. That’s a clear intention of retaining ownership, which is good.

Why the need for foreign partners?

But given the track record under 1MDB, which was and is, controlled by the MOF Inc, one cannot seriously take the statement to mean intention in the future. After all 1MDB promised it will be a strategic investment company to catalyse investment into the country and look at what it went and did.

IWH-CREC is the consortium which bought a 60 percent stake in Bandar Malaysia for RM7.41 billion under an agreement signed in December 2015, which values the entire Bandar Malaysia land of some 426 acres at RM12.35 billion. It is 60 percent owned by IWH and 40 percent by CREC.

The consortium has however maintained that it has met all conditions, directly contradicting TRX City in its statement. One hopes that this does not lead to yet another arbitration where Malaysia is going to lose money the way it did with the 1MDB settlement with International Petroleum Investment Company (IPIC) of Abu Dhabi.

As I pointed out in this column last week, 1MDB had tried to spin this settlement positively despite Malaysia undertaking to guarantee loans of RM3.5 billion even after a similar amount had been paid out to another company which it claimed was a subsidiary of IPIC.

The underlying problem is still the root one - there was no necessity to get foreign partners or anyone else to undertake the development of Bandar Malaysia. TRX City could have done it all by itself - just get a masterplan done by a reputable company after professionally evaluating all through an open tender.

Once the master plan is decided upon, allocate the land, decide on the requirements for each piece and simply auction off to the highest bidder local or foreign after the bidders have been prequalified through strict conformity programmes.

But the sale accomplishes several things for an allegedly corrupt 1MDB - first it brings in money needed to progressively cover up holes in 1MDB. Second, it sets a valuation benchmark for 1MDB which lays the foundation for a substantial revaluation of the land thereby hiding the operational losses that 1MDB continues to make.

It is futile to look for reason and rationale in 1MDB because it was set up with ill-intention in the first place. The alleged heist has been spectacularly successful but it is so big that it cannot be stashed away - it’s impossible to physically store over RM30 billion, the amount that is missing according to reports quoting the Auditor-General’s report on 1MDB.

Such movements of funds in the global financial system cannot take place without an electronic trail being left behind. Eventually and progressively it will become known and that is the way 1MDB will unravel along with the perpetrators. 1MDB will continue to be in the news.

But the least amount of damage will be done to Malaysia if it all unravels sooner rather than later.

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P GUNASEGARAM says things are often not the way they appear to be. Email: t.p.guna@gmail.com- Mkini