Confusion about price for 1MDB’s Bandar Malaysia sale

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Bandar Malaysia Artist Impression
Artist’s impression of the Bandar Malaysia project south of Kuala Lumpur’s city center

In another not very flattering blunder, Malaysia’s state-owned investment firm 1Malaysia Development Berhad (1MDB) obviously miscommunicated the effective sales price for the majority of its property development Bandar Malaysia at the southern outskirts of Kuala Lumpur.

1MDB on New Year’s Eve had announced the sale of 60 per cent of Bandar Malaysia’s land parcels to a joint venture of China Railway Engineering Corporation and Iskandar Waterfront Holdings at 7.41 billion ringgit, or $1.71 billion. 1MDB also said that the buyer will pay a down payment of 10 per cent, or 741 million ringgit, and that the transaction is expected to be completed by end of June 2016.

The purchase price was based on a valuation of 100 per cent of Bandar Malaysia by the Chinese group at 12.35 billion ringgit, thus 60 per cent were worth 7.41 billion ringgit, 1MDB stated.

However, in a filing to the Hong Kong Stock Exchange on January 3, the Chinese said that the purchase price was only 5.28 billion ringgit ($1.22 billion), some $500 million short of what 1MDB announced.

Asked by opposition lawmakers for clarification, 1MDB president Arul Kanda said that the lower price would reflect “adjustments” that had to be made between January and June 2016, depending on whether or not certain project liabilities were passed, which included relocation costs for existing facilities and a Bandar Malaysia sukuk.

“The agreement executed between the parties on December 31, 2015 provides for a robust and objective mechanism to determine, amongst others, the final project equity value, which will be different from the agreed land sale value,” Arul said in a statement.

The Chinese group’s announcement was based on “certain assumptions which were subject to further negotiations,” he added.

For Tony Pua, member of the Democratic Action Party, Malaysia’s largest opposition party, this explanation makes “no sense.” He pointed out that 1MDB was talking about the value of the land, while China Railway was talking about the actual purchase price.

“However, even such an explanation does not make sense as 1MDB clearly specified that a 10 per cent deposit of 741 million ringgit will be paid upon the signing of the agreement,” Pua said, wondering whether 1MDB “gave an inflated figure to make Prime Minister Najib Razak look good. Perhaps 1MDB did not expect China Railway to make an announcement to the Hong Kong Exchange or that there will be parties who would actually read the announcement.”

Pua called upon 1MDB to fully disclose the sales and purchase agreement signed between the parties.

“This will ensure that there’s no ambiguity on the understanding of the agreement as it involves Malaysian taxpayers’ money,” he added.

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Reading Time: 2 minutes

Artist’s impression of the Bandar Malaysia project south of Kuala Lumpur’s city center

In another not very flattering blunder, Malaysia’s state-owned investment firm 1Malaysia Development Berhad (1MDB) obviously miscommunicated the effective sales price for the majority of its property development Bandar Malaysia at the southern outskirts of Kuala Lumpur.

Reading Time: 2 minutes

Bandar Malaysia Artist Impression
Artist’s impression of the Bandar Malaysia project south of Kuala Lumpur’s city center

In another not very flattering blunder, Malaysia’s state-owned investment firm 1Malaysia Development Berhad (1MDB) obviously miscommunicated the effective sales price for the majority of its property development Bandar Malaysia at the southern outskirts of Kuala Lumpur.

1MDB on New Year’s Eve had announced the sale of 60 per cent of Bandar Malaysia’s land parcels to a joint venture of China Railway Engineering Corporation and Iskandar Waterfront Holdings at 7.41 billion ringgit, or $1.71 billion. 1MDB also said that the buyer will pay a down payment of 10 per cent, or 741 million ringgit, and that the transaction is expected to be completed by end of June 2016.

The purchase price was based on a valuation of 100 per cent of Bandar Malaysia by the Chinese group at 12.35 billion ringgit, thus 60 per cent were worth 7.41 billion ringgit, 1MDB stated.

However, in a filing to the Hong Kong Stock Exchange on January 3, the Chinese said that the purchase price was only 5.28 billion ringgit ($1.22 billion), some $500 million short of what 1MDB announced.

Asked by opposition lawmakers for clarification, 1MDB president Arul Kanda said that the lower price would reflect “adjustments” that had to be made between January and June 2016, depending on whether or not certain project liabilities were passed, which included relocation costs for existing facilities and a Bandar Malaysia sukuk.

“The agreement executed between the parties on December 31, 2015 provides for a robust and objective mechanism to determine, amongst others, the final project equity value, which will be different from the agreed land sale value,” Arul said in a statement.

The Chinese group’s announcement was based on “certain assumptions which were subject to further negotiations,” he added.

For Tony Pua, member of the Democratic Action Party, Malaysia’s largest opposition party, this explanation makes “no sense.” He pointed out that 1MDB was talking about the value of the land, while China Railway was talking about the actual purchase price.

“However, even such an explanation does not make sense as 1MDB clearly specified that a 10 per cent deposit of 741 million ringgit will be paid upon the signing of the agreement,” Pua said, wondering whether 1MDB “gave an inflated figure to make Prime Minister Najib Razak look good. Perhaps 1MDB did not expect China Railway to make an announcement to the Hong Kong Exchange or that there will be parties who would actually read the announcement.”

Pua called upon 1MDB to fully disclose the sales and purchase agreement signed between the parties.

“This will ensure that there’s no ambiguity on the understanding of the agreement as it involves Malaysian taxpayers’ money,” he added.

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