Malaysian government-owned 1MDB said today it has signed the share sale and purchase agreement with the Consortium IWH-CREC Sdn Bhd, which would jointly undertake the 486-acre (196ha) Bandar Malaysia mixed development at Sungai Besi in Kuala Lumpur.
According to 1MDB, the consortium is a 60:40 joint venture between IWH and CREC.
1MDB said the Consortium valued the Bandar Malaysia land at RM12.35 billion or about RM583 per square foot (psf), hence, the RM7.41 billion for the 60% stake. This is among Malaysia’s largest property deals in terms of value.
“1MDB will receive a 10% deposit of RM741 million upon execution of the share sale and purchase agreement, with completion of the transaction expected by end June 2016.
Bandar Malaysia is a master-planned urban redevelopment of Malaysia’s first airport in Sungai Besi. The township is the country’s strategic real estate development leveraged to capture high multiplier effects and to spur a vibrant economy.
It will be developed over a 15 to 25-year period at a projected gross development value (GDV) of RM150 billion. The development is designed to become Malaysia’s new international landmark when completed.
IWH, the master developer of the Flagship A portion of Iskandar Malaysia Economic Growth Corridor, is a public-private partnership between Credence Resources Sdn Bhd (60%) and Johor State Government-owned, Kumpulan Prasarana Rakyat Johor Sdn Bhd (40%). IWH owns 4,300 acres of prime seafront land in Danga Bay, Johor Bahru, within Iskandar Malaysia.
The company earned a track record developing the Danga Bay project where it has gone into partnerships with 11 developers so far to carry out projects along a 8km coastal stretch. These projects will have a GDV of RM125 billion and will be done over the next 10 to 15 years.
CREC is one of the world’s largest engineering and construction firms, and also has businesses, amongst others, in industrial manufacturing, real estate development, and resources and mineral products. It is currently ranked number 71 in the Fortune 500, with a turnover exceeding US$100 billion per annum.
“Today’s agreement marks the final major milestone in the 1MDB rationalisation plan as presented to the Cabinet of Malaysia on 29 May 2015, following on from the execution of the binding term sheet with Abu Dhabi’s International Petroleum Investment Corp (IPIC) in June 2015 (two deals totalled RM19.35 billion) and the share sale and purchase agreement of its energy arm, Edra Global Energy Bhd, with China General Nuclear Power Group (CGN Group) in November 2015 (deal valued at RM9.83 billion),” it said.
These deals would help 1MDB pay off its RM48.36 billion net debt as of March 2015, assuming the bulk of the proceeds from the stake disposal is channelled into debt-settlement.
1MDB said the agreement was the outcome of a Request For Proposal (RFP) launched in June 2015 by transaction advisor, CH Williams Talhar & Wong (WTW).
WTW received over 40 expressions of interest from local and international investors including from Singapore, China, Japan, Korea and Australia.
A total of 12 companies submitted their proposals. Four bidders were shortlisted in September 2015, with two final, binding and funded bids received on 9 November 2015. Three of the shortlisted candidates were led by foreign parties.
The other finalist is believed to be state fund manager, Permodalan Nasional Bhd.
However, there were reports of a last minute bid by a local company teaming up with a Qatar government’s investment fund for Bandar Malaysia, after the closing date for the final bid on 9 November. The local company is believed to be belonging to property baron Tan Sri Desmond Lim of the Pavilion and Malton groups.
The Consortium warded off the challenge with an initial RM150 million deposit that was placed in the first week of December, shortly after it received a letter from 1MDB stating that it was a preferred bidder.
1MDB president and group executive director Arul Kanda Kandasamy said he was delighted with the outcome of what has been a rigorous, highly competitive and value-enhancing process, which has exceeded expectations.
“The Consortium is a highly attractive development partner for Bandar Malaysia and their bid was fully in line with the objectives outlined in the RFP, namely value maximisation, acceptable commercial terms and certainty of transaction execution,” Arul Kanda said.
“As a result of this sale, the Bandar Malaysia development will be 76% owned by Malaysians, of which approximately 54% of the project will be owned by the Federal and Johor State governments, via 1MDB and MOF Inc (Ministry of Finance Incorporated) and KPRJ respectively.”
“The inclusion of CREC as an international partner with 24% of project equity represents significant foreign direct investment (FDI) and is a major testament to the continued strength and attractiveness of the Malaysian economy, as we move into high income nation status.”
IWH Group executive vice chairman Tan Sri Lim Kang Hoo said the participation of IWH in this transaction aligned with IWH’s role as a key master developer in Malaysia.
“The capability of IWH to undertake such major projects is proven, and is due to our philosophy of working in collaboration, cooperation and consultation with all stakeholders. The involvement of IWH in the Bandar Malaysia project creates an important link with the proposed terminus for the High Speed Rail (HSR) project and other on-going developments in Iskandar Malaysia,” he said.
The general manager of China Railway Engineering Corporation and managing director of China Railway Group Limited Yao Guiqing said: “The participation of CREC as a consortium partner is due to our confidence in the Malaysian economy, the strength of leadership, the high quality legal and regulatory environment and most importantly, the unique nature of Bandar Malaysia as conceived by 1MDB and as a strategic development project for the Government of Malaysia.
“CREC views our investment in Malaysia as a key part of our global portfolio. In particular, we have global expertise in master planning and construction of transport-oriented developments. We look forward to transferring technology, knowledge sharing and working closely with our Malaysian partners to make the Bandar Malaysia development a world class destination to be proud of.”
At a press conference today, Arul Kanda said the RM12.35 billion market valuation for the Bandar Malaysia land had exceeded 1MDB’s expectation.
Arul said the market price had exceeded the latest reported book value of the Bandar Malaysia tract and 1MDB’s estimation of the site’s market value.
“The book value of Bandar Malaysia as at the last publicly available accounts, which is 31 March 2014, was actually not broken down in the accounts, but it is in fact RM4.2 billion.
“We have always stated that our target value for Bandar Malaysia is RM11 billion to RM12 billion. We have now achieved RM12.35 billion, exceeding our expectations in terms of the target value for the rationalisation plan,” Arul Kanda said.
Currently the land houses the Sungai Besi airfield (former airport) for the army and police air wings. The existing facilities will be relocated to Sendayan, Negeri Sembilan by 2018 and the cost of relocation is included in the RM12.35 billion price tag.
Should 1MDB and the Consortium agree on the costs and manage to procure the relevant consents, then the Consortium will pay its 60% share of the costs and the Purchase Consideration will be adjusted accordingly, i.e. RM12.35 billion for the land Value less RM1.9 billion for the relocation costs less RM1.63 billion for the Bandar Malaysia sukuk costs = RM8.8 billion of which 60% Consortium share will be RM5.3 billion.
Reporters also asked Arul Kanda if the balance 40% Bandar Malaysia stake held by 1MDB would be transferred to the Ministry of Finance, which wholly owns 1MDB.
He said 1MDB had considered the sale of the stake as part of its rationalisation plan.
“As part of the rationalisation plan, there is a consideration for transferring the 40% stake ownership to the finance ministry. At the moment no final decision has been made.
“However it is still an option as envisaged under the rationalisation plan, which was announced in June 2015,” said Arul Kanda.
The Consortium is expected to start developing the first phase, involving one-third of the land with a plan to source for local and international partners to sell and develop the first phase as a stimulus to woo multi-national companies (MNCs) to relocate their regional offices to Malaysia and create a regional tourism destination.
The remaining two thirds of the land will be reserved as landbank.
The positive spillover effect of this deal is that attention could gravitate towards other potential players that could be roped in by the consortium to accelerate the development of Bandar Malaysia.
This is because some developers have already acquired land within the vicinity of Bandar Malaysia, such as Binastra Land Sdn Bhd’s acquisition of the Volkswagen showroom premises in Sungai Besi for RM96 million in June last year to develop a mixed development project with an estimated GDV of RM1 billion.
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To recap, the Bandar Malaysia development received planning approval from Dewan Bandaraya Kuala Lumpur (KL City Hall) on 26 October 2015. The “approval-in-principle”, granted based on Bandar Malaysia’s masterplan, is for a mixed-use development with an average gross plot ratio of 4.05, across the entire 486 acres site.
The development, located about 7km from Kuala Lumpur City Centre (KLCC) and just a little over 1km from 1MDB’s high-profile Tun Razak Exchange (TRX), is expected to serve as a catalyst for the transformation of Greater Kuala Lumpur, as it is aimed to be the city’s gateway for the proposed High Speed Rail (HSR) project between Kuala Lumpur and Singapore, and possibly up to Bangkok in the future.
Tan Sri Lim said that the development should attract MNCs due to its efficient transportation between Singapore and Bangkok.
“It gives us the best opportunity to build something that can attract foreign businesses here. Once the HSR is done, its only an hour to Singapore. And if we have a connection to Bangkok, it is another two hours. This will open up a destination for them as their regional office in Bandar Malaysia.”
“We need to bring that kind of tourism. With the spillover effect, it will help stop Malaysia’s brain drain of talents as well,” he said.
Bandar Malaysia will be the country’s future leading transport-oriented development (TOD) as it becomes a central transport hub in the city via Mass Rapid Transit (MRT) Line 2 and Line 3, KTM Komuter and the Express Rail Link (ERL).
There are also advanced plans by the government to improve and provide new highway connections to 12 other highways from the city centre to the south that will seamlessly link Bandar Malaysia to other areas within Greater Kuala Lumpur.
According to Bandar Malaysia’s website, it aims to become a beacon for international businesses seeking to establish a footprint in Malaysia and the ASEAN region. Its masterplan includes a blueprint for creating quality city living, establishing a global business and financial centre, and creative enterprise hub, and becoming a retail, lifestyle and tourism destination.
The main feature of Bandar Malaysia is that it will host an integrated underground city modelled after Montreal’s Underground City in Canada, which is the largest underground complex in the world.
A massive 32km tunnel-network of pedestrian walkways spread over more than 12km squared, the city beneath downtown Montreal in Canada intersects with seven metro stations, two commuter train stations and a regional bus terminal. The passageways allows approximately half-a-million people daily to reach some 2,000 shops and restaurants, 10 major hotels, museums, theatres and universities.
“Everything will be in the basement except for commercial buildings such as our towers and the landscape park, which will be above the city. Bandar Malaysia will be five times bigger than KLCC and its park, which is about 100 acres altogether,” said Tan Sri Lim.
The underground city in Bandar Malaysia will become the world’s second largest and will completely shelter its inhabitants from tropical weather conditions.
Bandar Malaysia will be home to a Global Business District, an international financial centre and managed business park with features including smart offices, robust digital infrastructure, future-proofed work spaces, a comprehensive security masterplan and more.
Supporting these will be a One-Stop Government Service Centre whose aim is to facilitate commerce and enterprise, and the Executive Learning Institutions that aims to produce talent required to support leadership development of the nation.
Its Retail Lifestyle Cluster will introduce a new shopping experience. Experiential shopping concepts will be combined with ground-breaking architecture to create a vibrant shopping experience which would capture both global and local fashion designers, artisans and traders, hence emerging as an entrepreneurial centre for trendsetting ideas.
The public realm of Bandar Malaysia will be leveraged upon to create a memorable shopping experience, with landscaped retail boulevards with wide pedestrianized corridor that can double up as fashion runways and parade grounds for events and festivals.
The Creative Enterprise Hub in Bandar Malaysia will be a natural home for companies operating in the high-end services industries – arts and culture, science & technology, multimedia, fashion and design. This is made possible by Bandar Malaysia’s strategically planned commercial, office, R&D centres and incubator spaces.
There is more to a thriving creative hub than just workspaces. The people working here will have an outlet for their creativity, with its strong cultural offerings in the form of theatres, cultural museums and studios, turning the hub into a magnet for talent, both local and foreign.
Bandar Malaysia’s GLEW Tourism Hub encapsulates its ambition to target specific sectors of the tourism industry: the Gastronomy, Leisure, Entertainment and Wellness tourism markets. Each of these segments will have its own respective requirements, from vibrant retail clusters and magnificent food courts showcasing Malaysia’s diverse gastronomic and culinary culture, to serene parklands and amenities promoting health, wellness and community congregation.
The Affordable Living Enclave will be Bandar Malaysia’s answer to providing the supporting workforce with quality homes, safe and secure environment, eco-friendly lifestyle and sustainable living. This enclave will offer an immediate population catchment to meet the needs of the entire development.
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1MDB further clarified that whilst the Government of Malaysia has designated Bandar Malaysia as the terminus for the HSR project, the sale of equity in the Bandar Malaysia project is not in any way linked to the eventual award of the HSR project, nor has 1MDB or the Government of Malaysia made any representations or agreements to that effect.
1MDB and the Consortium both confirmed that HSR is an entirely separate project, whose award will ultimately be determined jointly by the Governments of Malaysia and Singapore, per a separate process, that is and will not be linked or be contingent on, in any way, to the sale of 1MDB equity in the Bandar Malaysia project.
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All images courtesy of Bandar Malaysia Website.