Malaysia's investment in skyscraper raises query over 1MDB debts

Mulia Property owns the land on which the 106-storey TRX Tower is being built, after buying it from 1MDB in May 2015 for RM665 million (S$224 million).
Mulia Property owns the land on which the 106-storey TRX Tower is being built, after buying it from 1MDB in May 2015 for RM665 million (S$224 million).PHOTO: THE STAR/ASIA NEWS NETWORK

KUALA LUMPUR - The Malaysian government has said it will complete building the country's tallest skyscraper in Kuala Lumpur jointly with Indonesia's Mulia Group, amid criticism public funds are being used to rescue the private venture of debt-ridden state fund 1Malaysia Development Berhad.

On Thursday (March 8), the country's Ministry of Finance (MOF) issued a statement confirming that its subsidiary MKD Signature bought a 51 per cent stake in Mulia Property Development in July last year.

Mulia Property owns the land on which the 106-storey TRX Tower is being built, after buying it from 1MDB in May 2015 for RM665 million (S$224 million).

Second Finance Minister Johari Abdul Ghani told The Straits Times on Thursday that MKD Signature paid a nominal RM1 for its majority stake. He also said that the building, which will be the world's 15th tallest once completed at the end of this year, will be financed according to each party's share.

He conceded however that the RM665 million paid by the Mulia Group to 1MDB for the land is considered part of the Indonesian partner's contribution to the project cost, estimated to be about RM2 billion.

"Just a nominal value RM1 as the balance will be contributed proportionately based on respective equity structure and the construction costs of the Tower," Datuk Seri Johari said in a text message. "No payment made by MKD to Mulia. The cost of the land is considered as part of the contribution made by Mulia to the JV (joint venture)."

1MDB president Arul Kanda told The Straits Times that the state fund did not pocket the Mulia payment as "all monies paid to TRX remained in TRX, as it is needed to complete the infrastructure".

Mr Arul was referring to TRX City, a former subsidiary of 1MDB and the master developer for the Tun Razak Exchange financial district. Its assets were transferred to MOF as part of the government plan to rationalise 1MDB's RM51 billion debt.

The deal riles critics who say by stepping into the venture, the government is in effect buying back land from 1MDB at 70 times the price at which it was first given to 1MDB.

Mulia's RM665 million price tag works out to about RM4,490 per sq ft (psf), whereas the entire 28ha plot for the Tun Razak Exchange financial district was initially transferred from the government to 1MDB for just RM64 psf. 1MDB later sold parcels of the land in downtown Kuala Lumpur at commercial values in excess of RM2,000 psf and up to RM4,700 psf.

Additionally, the MOF has taken a RM2 billion bank loan to complete the project.

Opposition lawmaker Rafizi Ramli has asked why the government bought back into the project just two years after selling it.

Mr Rafizi said these moves showed that "1MDB continues to raise debt that is borne by Malaysians".

"This is opposed to Prime Minister Najib Razak's promises and 1MDB's statements whereby it said its debt can be settled without dragging Malaysians in," he said.

MOF in its Thursday statement explained that its subsequent involvement in the project was agreed from the onset of the 2015 deal. TRX is expected "to command a gross development value of RM40 billion", it said, so it was vital for the government "to ensure that it secures another strategic position in the progress and success of TRX".

When the 1.38ha land for TRX Tower was sold to Mulia Property nearly three years ago, the Najib administration trumpeted it as a sign that foreigners are keen to invest in Malaysia.

The project gets its name from the late Tun Razak Hussein, Malaysia's second prime minister and father of Datuk Seri Najib.

1MDB's woes have weighed down Mr Najib politically, following a July 2015 revelation that some US$700 million linked to the state fund were deposited into his personal accounts. The premier and Malaysian investigators have said the money was a political donation from Saudi royals, and Mr Najib denies using public funds for his personal gain.