SINCE May 3, Bandar Malaysia has been in the news, again. Almost six years ago, it hit headlines as the redevelopment of the Sungai Besi airforce base that was once Malaysia’s first international airport.

A lot has happened in six years but Bandar Malaysia is a crucial part of Malaysia’s commercial future and final settlement for its scandal-hit state investor 1Malaysia Development Berhad (1MDB).

What was once an airport and later an airbase has turned into the central piece of Prime Minister Najib Razak’s infrastructure push and economic drive since 2009 that started with potential investments from the Middle East to finally money from China.

Bandar Malaysia, the development

On May 28, 2011, Najib announced the Bandar Malaysia project, developed under the public-private partnership (PPP) model with an estimated cumulative gross development value of RM150 billion.

The 197ha development was owned by 1MDB under its real estate unit 1MDB Re and seen as a central transport hub, connecting a high-speed rail (HSR) terminus to Singapore, Mass Rapid Transit (MRT) lines, KTM Komuter, Express Rail Link (ERL) and 12 other highways.

Bandar Malaysia was envisioned as a world-class city-within-a city that would offer seamless connectivity, the first integrated transit-oriented mixed-used cluster that would have retail and lifestyle components, diverse types of city housing and a hub for international business, as well as for creative industries.

As part of the redevelopment, 1MDB was to relocate the Sungai Besi airbase to Sendayan for RM2.7 billion, which includes RM1.1 billion from the Ministry of Finance (MoF) and upgrade or develop seven other airbases.

1MDB debts and settlement

But 1MDB, set up in 2009 when Najib took office, ran into a RM42 billion debt and had to sell off its assets, including energy and water utilities unit Edra Energy and prime land in Kuala Lumpur under newly-appointed president Arul Kanda Kandasamy who took over in January 2015.

The fundamentals of the debt rationalisation plan involved a “debt for asset swap” with Abu Dhabi fund International Petroleum Investment Company (IPIC), a sale of equity in Edra Energy, a sale of equity in Bandar Malaysia, sale of master-planned land in TRX and disposal of non-core assets.

The IPIC “debt for asset swap” deal was signed first and later, Edra Energy was sold for RM9.83 billion in late 2015.

On the last day of 2015, 1MDB signed a share sale agreement for 60% stake in Bandar Malaysia owner Bandar Malaysia Sdn Bhd for RM7.41 billion with Sino-Malaysian consortium Iskandar Waterfront Holdings Sdn Bhd (IWH) and China Railway Engineering Corporation (CREC).

Bandar Malaysia Sdn Bhd was a unit of 1MDB Re, which was later renamed TRX City Sdn Bhd. The IWH-CREC consortium was later formalised as IWH-CREC Sdn Bhd (ICSB). This was to be the third and last part of the 1MDB debt rationalisation.

Deals came unstuck 

But 1MDB defaulted on its bonds a year ago, sparking a dispute with Abu Dhabi’s IPIC, which asked a London court to arbitrate over a claim totalling US$6.5 billion.

The Abu Dhabi deal, under which 1MDB will pay $1.2 billion in two instalments to IPIC by end of 2017, with the MoF taking responsibility for all future interest and principal payments under two bonds issued by 1MDB companies.

Both parties will continue talks until December 2020 over $3.5 billion linked to the two bonds, and no legal action will be pursued.

That settlement put a spotlight on the Bandar Malaysia deal, as TRX City shocked the market when it declared on May 3 that the share sale agreement with ICSB had lapsed.

TRX City also returned RM785.9 million comprising a 10% deposit for the Bandar Malaysia stake and other monies to ICSB on May 9. That left the last part of the 1MDB debt rationalisation now undone.

New Bandar Malaysia deals

Najib’s current five-day visit to Beijing was scheduled a while ago but has now proven opportune to strike new deals for Bandar Malaysia with other Chinese companies.

China’s biggest real estate company Dalian Wanda has indicated its interest to commit up to US$10 billion as master developer for the project while CREC is reportedly keen despite the recently-aborted deal with partner IWH.

Others that are said to be looking at projects there now include the Shanghai-based developer Greenland and China’s housing developer China Vanke Co. Limited.

The Malaysian Insight reported yesterday that Putrajaya is looking at holding a Request for Proposal (RFP) stage that would take up to three months to ensure Bandar Malaysia takes off this time.

It is understood that Najib has assured China that he will pay personal attention to the key project, as the previous share sales were handled by 1MDB executives.

The new Bandar Malaysia deals will more than cover remaining 1MDB losses and complete the debt rationalisation process.

Bandar Malaysia’s unintended fallout

The aborted share sale agreement with ICSB has also brought some unintended fallout.

1MDB president Arul Kanda Kandasamy has been dropped from the boards of Bandar Malaysia Sdn Bhd and also TRX City Sdn Bhd for “potential conflicts of interest”, Putrajaya said recently.

The Budiman committee that he and Finance Minister II Johari Ghani set up to handle 1MDB matters have been disbanded with all issues now under Treasury secretary-general Irwan Siregar Abdullah.

Also, coverage by the Singapore media on the cancellation of Bandar Malaysia deal has incurred Putrajaya’s ire.

Malaysian government officials have taken the coverage as evidence that the city state is trying to drive a wedge between Malaysia and China, now seen as an economic and military powerhouse in the region. – May 14, 2017.