KUALA LUMPUR - Malaysia's decision to tear up the 60-per-cent sale of its signature Bandar Malaysia project to a Chinese-led consortium came as a massive shock, with the fallout over the 197-hectare township that is earmarked to house a Kuala Lumpur-Singapore High-Speed Rail (HSR) terminus set to spread across the economy.
Iskandar Waterfront Holdings (IWH), the 60-per-cent partner in the consortium with China Railway Engineering Corp (CREC), voluntarily suspended its listed arm Iskandar Waterfront City (IWC) in expectation of a huge selloff that has already afflicted related company Ekovest, which like IWC, is controlled by Johor-based tycoon Tan Sri Lim Kang Hoo.
Across the Malaysian bourse, recent optimism over the perceived impact of massive Chinese deals - RM144 billion (S$46.5 billion) of which was unveiled in November after Prime Minister Najib Razak's extended visit to Beijing - was deflated overnight, leading to a 0.75 per cent drop in the Kuala Lumpur Composite Index by mid-morning, with smaller firms suffering the brunt of the collapse.
According to UOB-Kay Hian, IWH's plan to take over IWC's listing status and inject its 36 per cent share of the RM150 billion Bandar Malaysia sparked the two-month long bull run in the market. But that deal, which saw IWC's value triple this year, is now in doubt just a day ahead of a planned announcement of a finalised agreement.
"Expect significant overcast on broad sentiment, given that the IWC-IWH merger marked the start of the market exuberance and run-up on small-mid caps, and implications on perceived political uncertainty, 'murkiness' of government deals, and dampened China FDI investment theme," the investment bank's head of research Vincent Khoo said.
Pending the IWC-CREC consortium's legal challenge, Bandar Malaysia is now fully-owned by TRX City, which was taken over by the finance ministry from debt-laden 1Malaysia Development Berhad (1MDB), whose dealings have become the subject of investigations in several countries including Singapore and the United States.
Critics are now questioning if state-owned 1MDB, in its haste to settle RM51 billion in borrowings, failed to pick a reliable partner before handing over TRX City to the government, thus saddling taxpayers with yet more troubles from the so-called "strategic investment" firm.
Given that the Bandar Malaysia deal is seen to have been brokered at a government-to-government level, the breakdown now trains the spotlight on the hundreds of billions promised by Beijing in other projects across Malaysia.
In fact, unlike the Bandar Malaysia project, many other multi-billion deals with China have not reached the stage of binding legal agreements.
The Chinese investments, loans and partnerships were seen as a boost for a stuttering economy. Now, the reversal of a cornerstone G2G deal may instead put markets in reverse.