1MDB to lead development of most government land

KUALA LUMPUR: 1Malaysia Development Bhd (1MDB) will lead the development of most of the government land, particularly in the Klang Valley, with a view to ensuring returns to the government are maximised, said sources.

1MDB, set up with RM5 billion raised from the capital markets, will be the master planner and overall responsible for the strategic development of almost all government land, said sources.

It will partner foreign sovereign wealth funds such as the Qatar Investment Authority (QIA) in drawing up the masterplan and putting up the initial infrastructure for the property development.

“Only after the masterplan has been drawn and details of development firmed up will the project be open to all other developers, including locals.
Because the masterplan will be firmed up, the development will be controlled,” said a source.

“Considering 1MDB’s cost of borrowing is 5.75% for its 30-year papers, it is targeting an internal rate of return of between 12% and 15% for the projects it undertakes,” said a source.

It is learnt that the first project for 1MDB is the development of the old airport in Sungai Besi, which currently houses one of the squadrons of the Royal Malaysian Air Force (RMAF). The Edge Financial Daily reported last week that 1MDB and Lembaga Tabung Angkatan Tentera (LTAT) will have 30% each in the development of the Sungai Besi airport while the remaining 40% will be held by QIA.

The other parcels of government land that are up for development are in Jalan Cochrane, Jalan Peel, Jalan Stonor, Jalan Ampang and Jalan Lidcol.  Several local private sector companies — listed and unlisted — are said to be eyeing the government land. Some were already privatised several years ago.

One particular parcel in Jalan Cochrane was privatised to a company called Cochrane Indah Sdn Bhd based on a list released by the government in 1998. The principal shareholders of the company were Jen (Rtd) Tan Sri Yaacob Mohd Zain, the late Tun Ghafar Baba and Asnida Tun Daim, the daughter of former finance minister Tun Daim Zainuddin.

However, it is not certain if 1MDB will get the mandate to develop all of the government land.

“1MDB is already starting to do their homework such as identifying the potential planners that will be called to provide submission for the development. Actual work on the site will take place only in about a year from now on the most conservative timetable,” said a source.   

Last Friday, 1MDB and QIA signed a memorandum of understanding (MoU) to undertake investments in the energy sector and development of real  estate in the Klang Valley. QIA has committed to an investment of US$5 billion (RM16.1 billion) in the joint venture.

“The US$5 billion from QIA will come in as and when the joint venture identifies the project,” said the source.

1MDB was established as part of Prime Minister Datuk Seri Najib Razak’s efforts to boost foreign direct investments. It was set up with 1MDB borrowing RM5 billion from the debt market via bonds guaranteed by the government.

The initial plan was for another RM6 billion to come from the Terengganu state government. But this did not work out as the state was a reluctant party. With its seed capital, 1MDB is looking to invest in the energy, real estate, tourism and agriculture sectors via JVs with foreign sovereign wealth funds.

It already has a joint venture with PetroSaudi International in the energy sector. Its venture into the redevelopment of the 162ha Sungai Besi airport will be its first in real estate.  

The Sungai Besi airport, which served as the country’s first international airport from 1952 to 1965, was eyed by many parties as it is probably the last major tract of land located close to the city centre and has the potential for a multi-billion-ringgit redevelopment.

This article appeared in The Edge Financial Daily, May 19, 2010.