Wednesday, July 1, 2015

The Edge questions 1MDB’s claim of ready buyers for Air Itam, Pulau Indah land

Published: 1 July 2015 10:09 AM
1Malaysia Development Bhd (1MDB) says it has received ‘significant expressions of interest’ in its Air Itam and Pulau Indah land parcels. – The Malaysian Insider file pic, July 1, 2015.

1Malaysia Development Bhd (1MDB) says it has received ‘significant expressions of interest’ in its Air Itam and Pulau Indah land parcels. – The Malaysian Insider file pic, July 1, 2015.
Just hours ahead of Fitch Ratings’ announcement on its sovereign ratings review on Malaysia, 1Malaysia Development Bhd (1MDB) president Arul Kanda Kandasamy said he was “pleased to update that [1MDB] has received significant expressions of interest in [its Air Itam and Pulau Indah] land parcels”.
“Accordingly, 1MDB intends to appoint an independent real estate consultant to assist in reviewing the various proposals. A further announcement providing an update on the progress will be made within the next two weeks,” his June 30 statement headlined “monetisation of Air Itam and Pulau Indah land” read.
Has 1MDB received actual proposals to buy the Air Itam and Pulau Indah land or is 1MDB merely saying it will name the independent consultant within a fortnight? Is 1MDB saying buyers for the Air Itam and Pulau Indah land will be named within two weeks?
Otherwise, can anyone be blamed for thinking that the statement sounds all too similar to the one made by Lembaga Tabung Haji chairman Datuk Seri Abdul Azeez Abdul Rahim on the ready buyers available for the pilgrims’ fund’s controversial RM188.5 million purchase of the 0.63ha Signature Tower land in the Tun Razak Exchange (TRX)?
Did Abdul Azeez not say Tabung Haji was expected to make at least RM5 million in profits when the land sale completed as early as end-May? It is now July. The last we checked, a buyer has not been named.
Will seasoned analysts and investors take the statement seriously, with only 1MDB’s word backing its exuberance? If indeed 1MDB is eager to monetise the “significant expressions of interest” on the Air Itam and Pulau Indah land, surely it would have already hired a consultant to evaluate them? Why not at least announce the name of this consultant to lend credence to its statement?
This is needed because unlike the token sums it paid for TRX and Bandar Malaysia land, 1MDB paid RM1.056 billion to buy majority interest in the 234-acre (94.7ha) encumbered land in Air Itam, Penang between April and September 2013 from private owners, including those associated with prominent Penang tycoon Tan Sri Lim Gait Tong.
According to a land search done by The Edge on the five largest Air Itam plots on May 6, 2015, 1MDB owns 85.7% of Gerak Indera Sdn Bhd, Farlim Properties Sdn Bhd and 1MDB RE (Ayer Itam) Sdn Bhd, with minorities holding the balance.
More importantly, has 1MDB managed to work out a settlement agreement with the ground tenants of the Air Itam land? These ground tenants have to approve the development plans. It is estimated that the Air Itam plots are occupied by houses and workshops with 1,200 to 1,400 dwellings with water, electricity and postal addresses. Assuming a settlement cost of RM90,000 apiece, compensation to some 1,200 ground tenants would work out to RM108 million.
Would any third party want to jump into the fray if there is no assurance of a settlement with these ground tenants who are not mere squatters? Will the bulk of the Air Itam land still be earmarked for building 6,666 units of low-cost flats and 3,333 units of affordable homes – a plan which The Edge has shown to be mathematically impossible for 1MDB to make money from unless it sells properties at very high prices there?
As for the 310-acre Pulau Indah land, it was only on December 16, 2014 that 1MDB agreed to pay a revised price of RM294.378 million (RM21.80 per sq ft) to buy the land from Tadmax Resources. The sale was supposed to be completed yesterday, according to Tadmax’s Dec 16, 2014 statement. At the time of writing, there was no update on whether the deal has been completed.
In a separate statement yesterday, 1MDB said its plan to seek partners to develop Bandar Malaysia, intention to appoint consultants to help review interests received for its Pulau Indah and Air Itam land, and the various options it is pursuing in respect of monetising Edra Global Energy Bhd, “will allow [it] to reduce 1MDB’s debt significantly and ensure that maximum value is generated for its 100% ultimate shareholder, the government of Malaysia”.
1MDB also said the signing of a definitive agreement with International Petroleum Investment Co (IPIC) – which is also still pending – “will ultimately result in a debt reduction of approximately RM16 billion”.
Supporters of 1MDB have been eager to highlight that RM16 billion is 38% of 1MDB’s RM42 billion debt as at end-March 2014.
Professionals, however, know that a comparison of the RM16 billion is only meaningful if one knows the impact of the IPIC deal to 1MDB’s asset base and what 1MDB’s latest debt figure is. In short, the seasoned investors will need proof, not just words. These are people who will likely determine the direction of money flows.
They’re also likely to be asking: why so secretive about what assets 1MDB is transferring to IPIC, Arul? – The Edge Financial Daily, July 1, 2015.
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