KUALA LUMPUR: 1Malaysia Development Bhd (1MDB) is setting a reserve price of above RM3,000 per sq ft (psf) for its flagship Tun Razak Exchange (TRX) development, given the recent highs fetched within the central business district, a source told The Edge Financial Daily.
Assuming a sale price of RM3,000 psf and a developable area of 60% for the 70 acres (28.33ha) of prime land, TRX could be revalued at RM5.49 billion. As at March 31, 2012, the land was valued at RM1.78 billion on 1MDB’s books. The government-linked investment company bought the land from the government for RM320 million (or RM105 psf), according to media reports.
While there are already two transactions which have reached such soaring prices in Kuala Lumpur’s central business district — Singapore’s Oxley Holdings bought a Jalan Ampang plot in November at RM3,325 psf and KSK Group Bhd acquired a tract near Jalan Conlay in December at RM3,299 psf — investors who are keen to buy a plot at TRX, which is meant to be an international financial hub, would have to pay a similarly high price, if not higher.
Oxley acquired the Jalan Ampang plot before securing the necessary approvals for development. TRX plots, on the other hand, come not only with approvals, but with wide-ranging incentives such as tax breaks, allowances, cost deductions, and stamp duty exemptions.
In December, 1MDB said it was seeking investors to develop Stage 1 of TRX, consisting of a signature tower, up to five residential towers and two five-star hotels and a retail mall. It plans to continue holding equity interest in the majority of TRX’s developments through joint ventures. To date, it has announced only one partnership, with China’s EXIM Bank to develop the signature tower.
|TRX plans to continue holding equity interest in the majority of its developments through joint ventures. To date, it has announced only one partnership, with China’s EXIM Bank to develop the signature tower
However, many local developers and the public have expressed concern that the state-backed mega-project would sponge off demand for offices in the surrounding area.
Asset revaluations come rather often in 1MDB, to the extent that opposition leaders have called the state investor’s profits “paper gains”.
It bought the 70 acres from the government for RM320 million (or RM105 psf), according to media reports, and had by March 2010 revalued it to RM820 million. By 2012, it revalued it again at RM1.78 billion. The company would not be financially sound if not for such revaluations as well as loan injections, says Pakatan Rakyat.
Any significant revaluation to TRX would prove a boon to the debt-laden company. Its gearing ratio as at March 31, 2012 stood at 7.24 times.
According to media reports, it used US$1 billion (RM3.49 billion then) of the proceeds to invest in a joint venture with PetroSaudi International Ltd, a privately owned oil company. The following year, it sold its 40% stake in the venture to PetroSaudi for US$1.2 billion. However, the sale was not paid for in cash but in a bullet bond expiring in 2021 with an interest rate of 8.67%. 1MDB then lent a further US$500 million to PetroSaudi in another bullet bond expiring in 2015.
This article first appeared in The Edge Financial Daily, on February 12, 2014.