Kuala Lumpur - WHETHER in the form of an all-cash or a part cash-part assumption of debt deal, the total price tag for the 60 per cent stake in Bandar Malaysia Sdn Bhd is RM7.41 billion (S$2.4 billion).
Questions arose on the RM2.13 billion variance after China Railway Group Ltd (CRG) put the acquisition cost at RM5.28 billion in a filing with the Hong Kong stock exchange on Monday.
Four days earlier, Iskandar Waterfront Holdings Sdn Bhd (IWH) and China Railway Engineering Corp (M) Sdn Bhd - a unit of CRG - inked an agreement with 1MDB Real Estate Sdn Bhd to purchase the 60 per cent stake for RM7.41 billion.
The parties are now negotiating Bandar Malaysia-related liabilities which include an outstanding sukuk and the construction and relocation costs for a new air force base in Sendayan, Negri Sembilan in place of the former base that is to be transformed into a township.
Clarifying the confusion, 1MDB said the valuation contained in the Chinese company's announcement referred not to the land sale valuation, but to their estimated share of the net equity value of the Bandar Malaysia project based on certain assumptions, which are subject to further negotiations during the completion period between January and June.
"The starting point of any net equity value calculation is the land sale valuation of RM12.35 billion, of which the consortium's 60 per cent share equates to RM7.41 billion," the state-owned company said in a statement, adding that the RM741 million deposit of 10 per cent was also based on that amount.
Adjustments could be made to the RM7.41 billion land sale valuation, depending on whether or not certain Bandar Malaysia-related liabilities could be passed to the consortium, 1MDB said, noting that the executed agreement provided for "a robust and objective mechanism to determine among others, these matters, which all parties have committed to".
CH Williams Talhar & Wong (WTW) acted as the transaction advisor for Bandar Malaysia's request for proposal tender and the property consultant's deputy managing director Danny Yeo confirmed RM7.4 billion to be "the absolute value without any assumption of debt".
The parties were under pressure to conclude the share sale agreement before the end-2015 deadline set by the authorities, but debt negotiations are expected to take some time.
Getting consensus will not be easy, opined Hall Chadwick Asia Sdn Bhd chairman Kumar Tharmalingam, who noted that the budget for the new air-force base was only RM1.7 billion and it did not provide for a runway.
"Was the budget given by the air force or 1MDB, and when was it fixed as costs are rising?" he asked.
The air force would want a new facility equipped with the latest technology, he pointed out, adding that the Chinese would likely prefer to pay less cash for their portion and could probably build it cheaper than 1MDB.
However, there could be opposition to their involvement on grounds of national security.
Under pressure to rationalise its massive debts of some RM48 billion, Malaysia's controversial sovereign fund has been monetising its assets. In addition to Bandar Malaysia, it sold its energy assets in November to China General Nuclear Power Corporation for RM9.83 billion plus the assumption of debts.
As the IWH-CREC joint venture is a 60:40 partnership, Bandar Malaysia will ultimately be 76 per cent Malaysian owned, with the remainder held by the Chinese.
The 200 hectare plot of land on the Kuala Lumpur city fringe is the single largest piece in the vicinity, made more valuable because it will be developed as a transport hub linked by various inter-city train lines and will also house the terminus for the Kuala Lumpur-Singapore high speed rail.
A new township with an estimated gross development value of RM150 billion is expected to emerge over 15-25 years.
This article was first published on January 6, 2016.
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