KUALA LUMPUR - 1Malaysia Development Bhd (1MDB) is set to record an extraordinary gain in its 2016 financial statements following the sale of a 60 per cent stake in its Bandar Malaysia development to a consortium comprising Iskandar Waterfront Holdings Sdn Bhd (IWH) and China Railway Engineering Corp (M) Sdn Bhd (IWH-CREC).
The 486-acre land in Sungai Besi, which 1MDB acquired from the federal government for RM400mil (S$131mil), is now valued at RM12.35bil by the consortium. According to 1MDB's annual report, the purchase of the land was completed in 2013.
IWH-CREC is paying for its 60 per cent share of the development for RM7.41bil.
"The book value for the land is RM4.2bil. So we are now selling at a valuation of RM12.35bil," said 1MDB president and executive director Arul Kanda Kandasamy following the signing ceremony for the deal here yesterday.
1MDB's initial acquisition cost for the land at RM400mil translates to RM19 per sq ft. At a valuation of RM12.35bil, this now translates to RM583 per sq ft for the Bandar Malaysia land in a space of three years.
The parcel is a prime tract located on the outskirts of Kuala Lumpur and is believed to be the largest vacant tract available for sale sale in the capital city area.
Under the terms of the sale and purchase agreement, 1MDB will receive a 10 per cent 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. We want to have that option in order to better manage our cashflows and debt occupations," said Arul.
1MDB, which is wholly owned by the Finance Ministry (MoF), would retain the remaining 40 per cent stake for now, but there was an option of transferring it to the MoF under 1MDB's rationalisation plans, said Arul without going into further details.
The sale, alongside 1MDB's recent disposal of its power unit Edra Global Energy Bhd to China General Nuclear Power Corp for RM9.83bil, will see the fund shed the majority of its RM42bil debt load and will be reflected in its full year financial statement for the period ended March 31, 2016 (FY16).
Note that 1MDB has yet to complete its accounts for the financial year ended March 2015. On Oct 1, the fund, which is wholly owned by the Federal Government, was granted a six-month extension by the Companies Commission of Malaysia for it to file its financials.
In its FY14 statements, the firm valued its investment properties at RM7.08bil. This comprised the Bandar Malaysia land as well as the Tun Razak Exchange (TRX) exchange development.
IWH-CREC would also bear the RM2.7bil in cost for relocating the Sungai Besi Air Force Base as well as assuming Bandar Malaysia Sdn Bhd's RM2.4bil sukuk, Arul explained.
Arul declined to comment on whether IWH-CREC will have to inject further capital for the debt obligations of RM2.4bil on top of the RM7.41bil that it is paying for the 60 per cent stake in Bandar Malaysia.
According to officials at IWH-CREC consortium, the relocation cost is part of the entire consideration of RM12.35bil for Bandar Malaysia.
"The land is supposed to be handed over free of any encumberance and vacant. The relocation cost is part of price paid," says an official.
The relocation consists of the construction of eight new bases - six for the Royal Malaysian Air Force and two for the Royal Malaysian Police.
This is crucial as vacant possession of the Bandar Malaysia land can only be achieved once the relocation exercise is completed. Only then could construction activities begin in Bandar Malaysia, Arul said.
"The original target date of vacant possession, which is on Jan 1, 2017, was delayed due to the challenges faced by 1MDB. IWH-CREC will assist us in completing the remaining obligations under this relocation process, so I would say 2018 onwards (is the target)," he added.