THERE seems to be growing tension in the ranks over the axing of Iskandar Waterfront Holdings Sdn Bhd (IWH) and its partner China Railway Engineering Corp Sdn Bhd (CREC) from the RM12.35 billion Bandar Malaysia development project.
At the weekly Cabinet meeting last Wednesday, Prime Minister Datuk Seri Najib Razak, it seems, was adamant he did not want Tan Sri Lim Kang Hoo and his vehicle IWH to participate in the development of the multi-billion ringgit Bandar Malaysia.
It was apparently among many failed attempts by high-ranking government officials to salvage Lim and CREC’s positions in Bandar Malaysia.
While stories about what Lim did or might have done are aplenty, another source close to the prime minister says in his defence: “I think it’s fair … the important party to include is CREC (the 40% shareholder and partner of IWH),” he says.
IWH CREC’s Dec 31, 2015, share sale agreement to acquire 60% of Bandar Malaysia for RM7.41 billion had lapsed after the joint venture failed to meet conditions precedent, involving payments, despite 12 extensions.
But even government officials acknowledge that in such large-scale deals, extensions — even 12 of them — are common.
What is more, it seems the government did not give IWH CREC any notice of the termination of the contract. The government’s TRX City Sdn Bhd had said in a public statement: “This [termination] is because, despite repeated extensions being granted, IWH CREC failed to meet the payment obligations outlined in the conditions precedent under the share sale agreement (SSA). As a result, the SSA between the parties stands null and void with immediate effect.”
In a nutshell, it looks like Lim is the scapegoat who has to take the fall for the comedy of errors that occurred earlier this month, where the prime minister, it seems, failed to gauge the impact of scrapping IWH and Chinese state-owned CREC from the Bandar Malaysia development.
On the 12 extensions, a businessman tells The Edge, “Lim is a contractor. Which contractor pays on time?”
To recap, IWH and CREC had formed a 60:40 joint venture, IWH CREC Sdn Bhd, which was issued “the letter of a preferred bidder” on Nov 24, 2015, for 60% of the 486-acre Bandar Malaysia development. However, on May 3 this year, the government announced the termination of the agreement.
Unhappy Chinese officials
Several sources confirmed that the Chinese did not take too well to the allegations and were especially irritated with the statement that the consortium was not able to make the payments, as CREC is a state-owned company.
According to sources, Chinese government officials were even reluctant to accept the refund of the deposit of RM741 million and interim payment of RM44.88 million for the relocation of the air force base, Pangkalan Udara Kuala Lumpur.
It seems the officials were upset with Lim for cashing the cheque for the deposit refund, but he had other issues to handle, with publicly traded Iskandar Waterfront City Bhd’s (IWC) shares hitting limit down on May 8, after a 92 sen or almost 30% plunge to RM2.16 in early trading.
“CREC was understandably very upset. Can you imagine that they (CREC) were paying for the relocation, which amounts to about RM50 million every month, because they knew that their (IWH CREC) delays caused the additional expenditure … the MoF (Ministry of Finance) will now have to pay this [sum]. As far as I know, CREC were perfect gentlemen,” the source says.
It seems that a day before the government scrapped IWH CREC’s deal, Lim and a senior banker had been seen together in a popular restaurant, raising the assumption that Lim had obtained the requisite funding.
Worse, another Chinese company, Dalian Wanda Group, owned by China’s second richest man, Wang Jianlin (he was overtaken by Alibaba Group’s Jack Ma on May 14), was tipped to come into Bandar Malaysia, replacing IWH CREC.
On talks with Wanda, Najib was quoted as saying, “We have not gone into details and there is no agreement as yet, but this is to indicate their desire and our willingness to discuss with them.”
However, talk of Wanda coming in died down (The Edge hears that the Chinese authorities were not too pleased with Wang for what seemed like a sabotage of state-owned CREC’s deal) and IWH CREC were said to be back in the picture.
IWC’s share price hit limit up on May 16, gaining 49 sen or just a tad below 30% to close at RM2.13, on talk that it could be reinstated as the master developer of Bandar Malaysia. A local daily, linked to the ruling Barisan Nasional coalition, had reported, “Chinese Prime Minister Li Keqiang told Najib that China hopes the deal on Bandar Malaysia stays unchanged. Najib may have to take the Chinese wishes into consideration,” quoting a government source in Beijing.
Then, Minister in the Prime Minister’s Department, Datuk Seri Abdul Rahman Dahlan, denied there was any flip-flop but said that IWH CREC would be allowed to bid for Bandar Malaysia again when the request for proposals are called. Najib then said that, contrary to some erroneous reports, the termination of the agreement with IWH CREC was final and it would not be reinstated.
It seems some Chinese officials had termed Putrajaya as “ungrateful” for terminating the deal with IWH CREC, considering the acquisition of the 60% stake from 1Malaysia Development Bhd (1MDB) for RM7.41 billion was made when the government was in dire straits as a result of 1MDB’s hefty debts. The RM741 million deposit paid by IWH CREC in December 2015 was timely as 1MDB was mired in debts of more than RM40 billion.
According to a well-placed source, a key adviser of the prime minister on the entire IWH CREC debacle is Tan Sri Irwan Serigar Abdullah. He did not reply to calls and messages left by The Edge.
Government officials at loggerheads
Interestingly enough, Irwan has come under fire from certain bloggers, sparking talk that he was in a feud with Arul Kanda Kandasamy, 1MDB’s president. Some of the bloggers attacked Irwan personally and suggested that he was responsible for much of the leaked news on the whole issue.
Arul was removed from the board of Bandar Malaysia around the same time as the termination of the deal. Some news portals cited “potential conflicts of interest”, but these were never elaborated on.
Sources say Arul was with Lim in China earlier this month at the One Belt One Road Forum and he had helped to pacify the Chinese government.
Another government source says there is some friction between Arul and Irwan but it is nothing serious. “They will kiss and make up when the time is right. It’s a drama, a stage show,” he says, without elaborating.
Najib has said that he has confidence in Arul and that he will continue to be president of 1MDB and be involved in the TRX development, but Irwan will be in charge of the Bandar Malaysia development, in consultation with Arul.
If Irwan was behind the whole IWH CREC debacle, he did not get even a small slap on the wrist.
But could the feud get bigger, as all the parties involved — Lim, Irwan and Arul — are understood to be well connected?
Lim is understood to be a close associate of Datuk Seri Hishammuddin Hussein, Minister of Defence and newly-minted Minister with Special Functions in the Prime Minister’s Department.
Lim is also known to have good ties with the Johor Royal family. His private vehicle Credence Resources Sdn Bhd has 63% equity interest in IWH while the remainder is held by Kumpulan Prasarana Rakyat Johor Sdn Bhd.
Other than IWC, Lim’s other publicly traded companies are Ekovest Bhd, Knusford Bhd and PLS Plantations Bhd.
Hishammuddin’s brother, Datuk Haris Onn Hussein, via his vehicle Kota Jayasama Sdn Bhd, was a substantial shareholder in Ekovest until April 20 this year.
So, did the axing of Lim and CREC from Bandar Malaysia upset the Sultan of Johor and Najib’s cousin Hishammuddin?
Time will tell.
There are also talks that parties close to Najib had been involved in brokering the Wanda deal, which led him to scrap the IWH CREC deal.
To this suggestion, a government official merely says, “There’s no smoke without a fire.”
We get more money
The plus point for the government in axing IWH CREC is that it could get more money for Bandar Malaysia as the price has since risen.
Compared with the RM12.35 billion offered by IWH CREC at end-2015, Dalian Wanda Group earlier this month had said the Bandar Malaysia project is worth US$10 billion (RM43 billion).
But what this investment entails is unclear.
“There is nothing concrete … no mention of concrete plans or what they (Wanda) hope to do … nothing is signed. And with IWH CREC out of the picture, Wanda is in a great position to squeeze the government for a better deal for themselves.
“Hence, it’s best to have a tender all over again,” the source close to the prime minister says.
But in the meantime, the MoF will have to pay close to RM50 million a month in interim payments for the relocation of the air force base.
While there are very few details on these payments, it is understood that CREC had been making the payments.
Last Friday, the jostling started.
Malay Contractors Association president Datuk Mokhtar Samad expressed hope that a bumiputera firm would be made Bandar Malaysia’s master developer in line with the set terms and appointment process.
“We do hope the master developer will be appointed or chosen from among bumiputera contractors. [This will] allow for the economic cake to be tasted and shared among locals who have their own skills and expertise,” he is reported to have told a news portal.
One market observer says companies such as KLCC Property Holdings Bhd, which is almost 65% controlled by oil company Petronas, could have the calibre and financial muscle to develop Bandar Malaysia. And there is Malaysian Resources Corp Bhd, which is 33.91% controlled by the Employees Provident Fund and the developer of transit-oriented development, KL Sentral.
Also, there is Cyberview Sdn Bhd — a consortium of Malaysian companies including Setia Haruman Sdn Bhd, MK Land Holdings Bhd, Country Heights Holdings Bhd, Selangor’s Kumpulan Darul Ehsan Bhd and Permodalan Nasional Bhd — which developed the 7,000-acre Cyberjaya.
So, a similar model might be brought up on land that remains with the government.
This model would also counter Najib’s harshest critic, former prime minister Tun Mahathir Mohamad, who has questioned the sale of large tracts of land to the Chinese and the award of large contracts to China companies.
Although Mahathir could be silenced and the government could benefit from a higher price for Bandar Malaysia, the government’s pulling out of the IWH CREC deal in such a terse manner could leave a lasting mark — a blow to the country’s credibility as a trustworthy and reliable dealmaker.