State investment firm 1Malaysia Development Bhd (1MDB) is in the final stages of selling 60 per cent of a giant township project in Kuala Lumpur, the final piece of a plan to wipe out its mountain of debts and bring cheer to Prime Minister Najib Razak.
The stake sale in 197ha Bandar Malaysia has implications for the high-speed rail (HSR) link to Singapore as the Malaysian end of the network will end in the township and raise its profile as the capital city's new transport hub.
The deal could be announced this week, coinciding with the annual Umno general assembly as Datuk Seri Najib - who chairs 1MDB's board of advisers - had been under pressure to resign for his poor handling of the state investor's debts.
The Straits Times has learnt that a China-backed consortium led by Malaysia's Iskandar Waterfront Holdings (IWH) is the front runner to take the controlling stake of Bandar Malaysia, valued at more than RM11 billion (S$3.6 billion).
1MDB has already made big headway in cutting its debts, which stood at some RM42 billion at the end of March last year, according to its last available financial statements. It has signed a deal to sell power plant unit Edra Global Energy to China General Nuclear Power for RM17 billion.
Further, 1MDB also has a RM16 billion debt-for-asset swap with an Abu Dhabi sovereign wealth fund.
IWH's partner in the proposed Bandar Malaysia deal is China Railway Engineering, which is eyeing a stake in the township for more than just its property play, a source close to IWH said. "Gaining rights to build the terminal in Bandar Malaysia will give them a leg up in the HSR deal," said the source.
The Chinese firm is hoping to get ahead of the queue in bidding for the 340km line that will cut the Singapore-KL travel time to 90 minutes.
Around 150 companies and consortiums have responded to a request-for-information (RFI) for the S$14.9 billion HSR in an October market-sensing exercise by Singapore and Malaysia.
The respondents include firms based in Malaysia, Singapore, other parts of the Asia-Pacific region, Europe, the Middle East and North America, said Malaysia's Land Public Transport Commission and Singapore's Land Transport Authority.
IWH is a major property player in Johor's Iskandar Malaysia development. It is controlled by property tycoon Lim Kang Hoo and owns over 1,600ha of land just across the Causeway from Singapore.
In a media conference on Oct 31, 1MDB chief Arul Kanda Kandasamy said the Bandar Malaysia divestment would net at least RM11 billion for the finance ministry-owned company. He said three bidders were likely to submit "final binding and fully funded proposals" within seven to 10 days, but did not name the prospective buyers.
A 1MDB source told The Straits Times that Tan Sri Lim "is a front runner" as another bid was from state fund manager Permodalan Nasional (PNB) and the third had failed to materialise by Mr Arul's early November deadline.
Since selling a 1MDB asset to another government agency like PNB would be seen as a bailout, the China Railway-IWH proposal is the front runner.
But according to the IWH source, the delay in naming the winner had agitated Mr Lim, who was concerned after hearing that there might be a bid from Qatar players.
Still,sources say there are still several hurdles to finalising the deal. For example, 1MDB needs cash to pay down its loans, but Mr Lim is said to prefer land swaps and other payments in kind. A fully funded Qatari bid would likely be a straight cash-for- equity purchase.
This article was first published on December 7, 2015.
Get a copy of The Straits Times or go to straitstimes.com for more stories.