Collapsed Bandar Malaysia deal adds to 1MDB debt pressure

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The surprising termination of a share sale of 60 per cent of Malaysia’s currently largest real estate and city development project Bandar Malaysia to a Chinese-backed consortium has put the Malaysia’s public debt problems in the limelight again.

The deal, valued at $2.3 billion, was a cornerstone of efforts by Malaysia’s government to sell off assets of scandal-stricken and highly indebted state fund 1Malaysia Development Berhad (1MDB) and believed to well underway. But on May 4, Malaysia’s Ministry of Finance, who now oversees the project on behalf of 1MDB, announced that the sale will not happen since “the buyers failed to meet the payment obligations”.

Speculations are the Chinese government refused to authorise the investment by China Railway Engineering Corporation owing to current capital controls instated by Beijing in order to curb the outflow of the yuan from the country.

But other say it was a tit-for-tat response to Malaysia for not clearly committing to China as supplier for the planned high-speed railway from Kuala Lumpur to Singapore for which Bandar Malaysia would house the terminus.

Beijing reportedly argued that it has reservations over the deal since “the 1MDB fund hasn’t published financial statements for 2015 or 2016, so its current financial situation is unclear”.

Bandar Malaysia – a mega property development project in Kuala Lumpur estimated to have a gross development value of $37 billion when completed in 20 years – is a flagship project by Prime Minister Najib Razak who stands for election next year. The deal’s failure is likely to add to pressure on Najib, who also is finance minister, to find other ways to pay 1MDB’s debts.

The Malaysian government, however, was quick to declare that the termination of the deal was a “isolated event” and would neither affect bilateral relations between Malaysia and China nor derail plans to free 1MDB of its debts. Rather, a new company with “far more attractive and comprehensive plans” would be invited to become the master developer for Bandar Malaysia. The name of this company has yet to be announced, though.

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Reading Time: 2 minutes

The surprising termination of a share sale of 60 per cent of Malaysia’s currently largest real estate and city development project Bandar Malaysia to a Chinese-backed consortium has put the Malaysia’s public debt problems in the limelight again.

Reading Time: 2 minutes

The surprising termination of a share sale of 60 per cent of Malaysia’s currently largest real estate and city development project Bandar Malaysia to a Chinese-backed consortium has put the Malaysia’s public debt problems in the limelight again.

The deal, valued at $2.3 billion, was a cornerstone of efforts by Malaysia’s government to sell off assets of scandal-stricken and highly indebted state fund 1Malaysia Development Berhad (1MDB) and believed to well underway. But on May 4, Malaysia’s Ministry of Finance, who now oversees the project on behalf of 1MDB, announced that the sale will not happen since “the buyers failed to meet the payment obligations”.

Speculations are the Chinese government refused to authorise the investment by China Railway Engineering Corporation owing to current capital controls instated by Beijing in order to curb the outflow of the yuan from the country.

But other say it was a tit-for-tat response to Malaysia for not clearly committing to China as supplier for the planned high-speed railway from Kuala Lumpur to Singapore for which Bandar Malaysia would house the terminus.

Beijing reportedly argued that it has reservations over the deal since “the 1MDB fund hasn’t published financial statements for 2015 or 2016, so its current financial situation is unclear”.

Bandar Malaysia – a mega property development project in Kuala Lumpur estimated to have a gross development value of $37 billion when completed in 20 years – is a flagship project by Prime Minister Najib Razak who stands for election next year. The deal’s failure is likely to add to pressure on Najib, who also is finance minister, to find other ways to pay 1MDB’s debts.

The Malaysian government, however, was quick to declare that the termination of the deal was a “isolated event” and would neither affect bilateral relations between Malaysia and China nor derail plans to free 1MDB of its debts. Rather, a new company with “far more attractive and comprehensive plans” would be invited to become the master developer for Bandar Malaysia. The name of this company has yet to be announced, though.

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