Malaysia's 1MDB faces scrutiny amid new agreement with retirement fund KWAP to buy TRX land

Men walking past a 1 Malaysia Development Berhad (1MDB) billboard at the funds flagship Tun Razak Exchange development in Kuala Lumpur on March 1, 2015. -- PHOTO: REUTERS
Men walking past a 1 Malaysia Development Berhad (1MDB) billboard at the funds flagship Tun Razak Exchange development in Kuala Lumpur on March 1, 2015. -- PHOTO: REUTERS

PETALING JAYA - Retirement fund KWAP Inc has agreed to buy a parcel of land and building in the Tun Razak Exchange (TRX), at a price more than 15 per cent lower than a similar purchase made by Malaysian pilgrimage agency Lembaga Tabung Haji, The Star reported.

The move is likely to add to the widening controversy over the land purchase deal made by the troubled state fund 1Malaysia Development Berhad (1MDB) and the Lembaga Tabung Haji (LTH), a deal some critics say was highly overpriced.

According to The Star, KWAP and 1MDB had ironed out the heads of agreement for the purchase, with the KWAP paying between RM1 billion (S$370 million) and RM1.2 billion for a 40-storey tower and land in TRX, Kuala Lumpur's new financial district that is owned by 1MDB.

The English daily quoted sources as saying that KWAP would be purchasing the land at about RM2,300 per sq ft.

"The heads of agreement is a prelude to the sales and purchase (S&P) agreement. The terms of agreement is also tight where KWAP will only pay 10 per cent first and the rest upon completion of the building," said a source.

LTH paid RM188.5 million (S$70 million) at RM2,774 psf in its land deal, about 43 times what 1MDB paid four years ago when it purchased the plot, the Malay Mail Online reported.

The purchase by LTH was heavily criticised by opposition lawmakers while former Prime Minister Mahathir Mohamad said it amounted to a "bailout" of the state fund. Following the uproar, the pilgrim fund announced on Saturday it would sell its land.

1MDB is struggling with nearly RM42 billion of debts after buying 15 power plants and one desalination plant in six countries in just six years.

It is wholly owned by the Ministry of Finance and its board of advisers is chaired by Prime Minister Najib Razak.

Current ministers in Najib's cabinet have also sought answers as to how and why 1MDB has come into its current state of affairs.

The 1MDB issue is also expected to take centre-stage at ruling party Umno’s 69th anniversary celebration on Monday. Najib, who is Umno's party president, will likely address the 1MDB controversy in his presidential speech amid rising concerns among members over how the issue is affecting the party.

Najib had spoken out for the first time on the issue on Sunday, saying that LTH did not bail out 1MDB when it purchased the land. He said the fact that LTH had received several offers to buy the same plot of land showed that the earlier purchase was not aimed at bailing out 1MDB.

The Star report on Monday said KWAP has been renting its headquarters and the decision to move to TRX was a natural step given that the development was being designed as a Islamic financial market hub.

"KWAP wants to be in an area where the market is, especially one that is going to be an Islamic finance centre," said a source.

Its headquarters is currently at Menara Yayasan Tun Razak, which is owned by the Tun Razak Foundation and the Employees Provident Fund.

Although the S&P agreement has not been signed, the terms of the deal to buy the building and land would be better than the aborted transaction between 1MDB and LTH, sources said.

"KWAP will pay a deposit of 10 per cent and the money will be deposited into an escrow account," said a source.