1Malaysia Development Bhd (1MDB) has clarified that China Railway Group Ltd’s revised figure of RM5.28bil for the controlling stake in Bandar Malaysia was in reference to the estimated share of the land’s net equity value.
China Railway created some confusion when it informed the Hong Kong Stock Exchange (HKEx) on Monday that the consortium comprising its Malaysian unit, China Railway Engineering Corp (M) Sdn Bhd (CREC), and Iskandar Waterfront Holdings Sdn Bhd (IWH) was paying a significantly lower sum for Bandar Malaysia instead of the earlier reported RM7.41bil.
1MDB clarified yesterday that the valuation contained in the announcement made by CREC to HKEx did not refer to the land sale valuation, but instead to their estimated share of the net equity value of the Bandar Malaysia project.
This, it said, was based on certain assumptions that are subject to further negotiations during the completion period between January and June 2016.
“The starting point of any net equity value calculation is the land sale valuation of RM12.35bil, of which the consortium’s 60% share equates to RM7.41bil.
“This is the basis upon which the 10% deposit of RM741mil has been calculated and agreed upon by all parties,” said 1MDB in a statement.
During the completion period, 1MDB explained that adjustments may be made to the RM7.41bil land sale valuation, depending on whether or not certain Bandar Malaysia related liabilities can be passed to the consortium.
These liabilities include the remainder contract costs for relocation of the existing facilities and the Bandar Malaysia sukuk debt.
“The agreement executed between the parties on Dec 31, 2015 provides for a robust and objective mechanism to determine, among others, these matters, which all parties have committed to.
“1MDB is focused now on taking the necessary steps and to procure the relevant consents in order to implement the legally binding agreements executed in 2015 for the sale of Edra, the debt for asset swap with International Petroleum Investment Company and the sale of 60% equity in the Bandar Malaysia project.
“We intend to issue further updates on this in due course,” it said.
The announcement by China Railway on Monday saw the stock fall 3% to HK$5.43 on Tuesday.
1MDB added that certain parties had criticised its valuation of Bandar Malaysia in an attempt to undermine its rationalisation process.
“1MDB notes that certain quarters have attacked the RM7.41bil land sale valuation contained in a recent announcement on the successful share sale and purchase agreement executed with the IWH-CREC Consortium for 1MDB to sell 60% of the equity in the Bandar Malaysia project.
“These appear to be last ditch attempts by members of the opposition to undermine the company’s rationalisation process.”
On Monday, analysts said the RM7.41 bil price tag for the sale of 1MDB’s stake in Bandar Malaysia was reasonable based on the valuation of surrounding plots of land within the vicinity.
UOB-Kayhian said in its report that the price paid by the purchasing consortium was “fair” given the asking prices for land in the surrounding and more developed areas ranged between RM350 per sq ft and RM650 per sq ft, particularly within the Taman Desa and Seputeh areas.
“Although Bandar Malaysia’s land is still not developed, 1MDB has secured approval in principle for the development’s masterplan with an average gross plot ratio of 4.05times,” it said. The research house believes that a development of this magnitude would require the significant part of the land to be earmarked for infrastructure requirements, including for the inner-ring roads, walkways and the rail-related infrastructure.
“Assuming a 70% efficiency ratio for the development, with a land price-to-gross development value ratio of about 20%, an indicative pricing which we believe the development could fetch would be RM1,300 per sq ft to RM1,600 per sq ft.”
The transaction values the entire 486-acre Bandar Malaysia at a staggering RM12.35bil. The land, which 1MDB acquired from the Government in 2013 for RM400mil.
The Bandar Malaysia land deal includes a RM2.4bil sukuk as well as the relocation of the Kuala Lumpur Air Force Base to a new location that could cost some RM2.7bil. This will include the land acquisition and the construction of new bases.
According to 1MDB president and chief executive officer Arul Kanda Kandasamy, about RM1.63bil of the Bandar Malaysia sukuk has been drawn down, with the outstanding liability on 1MDB’s books being less than the RM2.4bil nominal value.
1MDB, which is wholly-owned by the Finance Ministry, would retain the remaining 40% stake for now, but there was an option of transferring it to the ministry under 1MDB’s rationalisation plans.
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.
Source – The Star