Saturday, 6 May 2017

(The Star) New names, new value

As Kang Hoo fights back, new names have surfaced as possible contenders to develop Bandar Malaysia

It is a Wednesday afternoon and Tan Sri Lim Kang Hoo of Iskandar Waterfront Holdings Sdn Bhd (IWH) is preparing to attend a site visit of Bandar Malaysia by the Prime Minister.

Kang Hoo won the bid to develop the land, said to be the choicest in the country, about two years ago. His ambitious plan included building an underground city modelled after Montreal, Canada.

However, two hours before the event in Kuala Lumpur, Kang Hoo gets an ominous call that Datuk Seri Najib Tun Razak was cancelling the site visit. Later, he gets a hand-delivered letter that the Government is calling off the deal to sell a controlling stake in Bandar Malaysia to Kang Hoo’s IWH CREC Sdn Bhd (ICSB), a consortium comprising IWH and China Railway Engineering Corp (M) Sdn Bhd (CREC),

In a statement issued that day, TRX City Sdn Bhd, an entity of the Ministry of Finance Inc (MoF), made it clear why it had done so: ICSB had failed to meet payment obligations outlined in the sale agreement for its planned purchase of 60% equity in Bandar Malaysia. TRX City added that this was after repeated extensions. Some media reports indicate that while ICSB had forked out some RM741mil as downpayment for the RM7.41bil stake, it didn’t meet interest payments related to the balance.

That decision sent the local stock market reeling, shedding some 13.84 points on Thursday. Many construction outfits saw their shares tumble on fears that China firms would be halting their investments in large infrastructure projects in Malaysia.

On Wednesday evening, the shares of Kang Hoo’s Iskandar Waterfront City Bhd (IWC) tumbled 14 sen or 4.35% to close at RM3.08 prior to the announcement by TRX City, which was sent to the media later in the evening.

On Thursday morning, indications were that trading in IWC shares would hit limit down. But just before the market opened, its shares were suspended for the next two days, pending a major announcement.

In March, IWC had proposed to acquire IWH in a deal that was closely looked at by investors because of the potential exposure to the Bandar Malaysia development eventually.

Kang Hoo’s other listed vehicle Ekovest Bhd, a highway operator, continues to see heavy selling.

The property tycoon, though, is not taking this development sitting down. Through statements issued to the media, ICSB denies any default of payment on its part and is exploring legal options on this issue (see sidebar).

However, what may seem like a crisis to Kang Hoo’s camp is turning out to be a huge opportunity for others.

Possibly, the first groups to take note of Wednesday’s termination were the other contenders for Bandar Malaysia. There were said to be 40 bidders during the 2014 tender process, among them Tan Sri Desmond Lim partnering a Qatari state-owned company.

Some stock investors are getting bullish on WCT Holdings Bhd and Malton Bhd, companies linked to Desmond. The stocks rose to record their respective highs of RM2.32 and RM1.51 yesterday. It is also learnt that prior to awarding Bandar Malaysia to ICSB, a plan had been conceived for a consortium of government-linked investment companies (GLICs) to take up the project. However, that plan didn’t materialise partly because it would have been seen as GLICs bailing out the Government.

TRX City is the master developer of the Bandar Malaysia project that is under the ambit of the MoF, which has taken over from 1Malaysia Development Bhd (1MDB) following a restructuring. TRX City was known as 1MDB Real Estate Sdn Bhd then, and was a wholly-owned unit of 1MDB. The transfer of TRX City and Bandar Malaysia from 1MDB to the MoF came into effect recently.

GLICs come into play

Ironically, the latest development comes less than two weeks after an agreement reached between 1MDB and Abu Dhabi’s sovereign wealth fund, International Petroleum Investment Company (IPIC), on two bond issues worth US$3.5bil.

Open season: A scale model of the Bandar Malaysia project. Analysts say it is likely that a new tender process will be carried out by the Government for the project.

Under the agreement reached at the London Court of International Arbitration, 1MDB said, among others, that it has agreed to make certain payments to IPIC and would assume responsibility for all future interest and principal payments for two bonds issued by the 1MDB group of companies due in 2022.

This means that the 1MDB and the MoF would need to make payments to IPIC.

An insider reckons that in today’s climate, Bandar Malaysia carries less of the 1MDB stigma, as it is firmly entrenched as a transportation hub, among others.

“Now the climate is different. It is a viable-looking project, the choicest piece of land and a transportation hub,” he says.

It is believed that it is now open season for any large developer or investment firm to bid for Bandar Malaysia.

Property developers don’t rule out a new tender process being launched soon.

Malaysian developers with the backing of GLICs are said to be also keen to participate in the project.

“I can foresee, a joint venture between GLIC-controlled SP Setia Bhd and Malaysian Resources Corp Bhd. Both are backed by Permodalan Nasional Bhd and the Employees Provident Fund (EPF) respectively, which can cough up the required investment amount and take equity at the project level,” he says.

Last month, StarBizWeek highlighted a growing trend among local GLICs to take up direct stakes in iconic projects by developers. Retirement Fund Inc bought into Eastern & Oriental Bhd’s ambitious Seri Tanjung Pinang project, while the EPF said it would invest RM683mil in a project in Melbourne, Australia, by the OSK group.

Another contender is likely to be Kwasa Land Sdn Bhd, the master developer unit of the EPF.

There are also rumours that another Chinese party is jockeying to get into the project, declaring that it would not have any issues coming up with the required money for the project.

Some sources say that entity could be Dalian Wanda Group Co Ltd, a Chinese multinational conglomerate corporation and the world’s biggest private property developer (see sidebar).

Spculation is rife that Dalian Wanda would team up with the Malton group and possibly the EPF to bid for Bandar Malaysia.

Valuation issue

One key issue to note is that the value of Bandar Malaysia should have significantly increased since ICSB inked the deal.

It was signed in December 2015 for ICSB to pay RM7.41bil for its 60% stake. Thus, this deal valued the 486 acres of Bandar Malaysia land at RM12.35bil.

The land was also said to have an estimated gross development value of RM200bil.

1MDB first acquired the plot of land in Sungai Besi for RM400mil in 2013. Based on reports, the book value of Bandar Malaysia stood at RM4.2bil as at March 31, 2014.

Market observers say the value of the land is much higher today.

This was all the more apparent after Alibaba founder and executive chairman Jack Ma visited Malaysia last month to jointly launch the Digital Free Trade Zone (DFTZ) with Najib.

The DFTZ, which has two key aspects – Alibaba’s regional logistics hub in the KL International Airport and the Kuala Lumpur Internet City or KLIC – is set to become the Silicon Valley of South-East Asia to be located in Bandar Malaysia.

The DFTZ is expected to accelerate the growth of Malaysian small and medium enterprises, increase overall exports by US$25bil (RM108bil) and create 60,000 jobs by 2025.

Intrinsically and sentiment-wise, Ma’s presence and plans for the DFTZ have boosted the value of Bandar Malaysia’s land.

More importantly, Bandar Malaysia is no longer viewed with a jaundiced perspective.

On a conservative basis, if one were to value the 486 acres of the land in Bandar Malaysia at RM1,000 per sq ft, this would translate into RM21bil in terms of land value.

Some 20 years ago, the central business district (CBD) around the Kuala Lumpur City Centre (KLCC) area was only valued at RM100 per sq ft. Today, high-end apartments are going for more than RM1,500 per sq ft.

That same effect in KLCC could be replicated in Bandar Malaysia, considering the very ambitious developments and infrastructure that have been put in place.

“We believe if all 486 acres were to be sold on an outright basis, it would cost about RM1,000 per sq ft.

“If the land were to be sold in smaller plots or on a net developable basis, it could fetch between RM2,000 and RM3,000 per sq ft. If valued at RM1,000 per sq ft, the land will be worth RM21.17bil,” says PPC International Sdn Bhd managing director Datuk Siders Sittampalam.

“Valuing the land at RM1,000 per sq ft is as cheap as you can get, especially for CBD land,” says one observer. He adds that the plot ratio in Bandar Malaysia is eight times, whereas in TRX, where the lowest transacted land pricing was going for RM2,700, the plot ratio is four times.

Bandar Malaysia is a mixed-use transit-orientated development strategically located in the heart of Greater Kuala Lumpur.

It is planned as Kuala Lumpur’s gateway to the high-speed rail to Singapore and to become a central transportation hub in the city via the MRT Line 2 and Line 3, KTM1, ERL1 (Airport Transit), BRT1 and future access to major highway networks.

In essence, the value of Bandar Malaysia is different now, considering that it has a clear masterplan, tax incentives formalised and transport elements firmed up.

It is likely that a new tender process will be carried out by the Government for the project.