Who will refund the RM741 million deposit paid by Iskandar Waterfront Holdings to acquire the now aborted Bandar Malaysia equity interest – 1MDB or the Ministry of Finance?

The announcement by TRX City Sdn Bhd, now a wholly-owned subsidiary of the Ministry of Finance (MOF), that the RM7.41 billion sale of 60% equity interest in Bandar Malaysia has collapsed did not come as a surprise at all.

I have previously questioned 1MDB and the MOF as to why the prized asset was sold to a consortium, led by Iskandar Waterfront Holdings Bhd (IWH), whose total net assets is worth barely RM3.8 billion, less than half the above transaction value.  For the financial year ending 31 December 2015, the company’s net profit was before tax was only RM170.4 million.

Despite IWH clearly attempting to bite off more than it can chew, 1MDB had proudly announced on 31 December 2015 that IWH-Bandar Malaysia sale agreement “marks the final major milestone in the 1MDB rationalisation plan as presented to the Cabinet of Malaysia on 29 May 2015”.

1MDB President and CEO, Arul Kanda had boasted that “the [IWH] Consortium is a highly attractive development partner for Bandar Malaysia and their bid was fully in line with the objectives outlined in the RFP, namely value maximisation, acceptable commercial terms and certainty of transaction execution.”

The deal was expected to be completed by June 2016 but was delayed clearly by IWH’s inability of meet the agreed payment terms and schedules.  My questions in Parliament on the project status in November 2016 and April 2017 were met with cryptic replies from the Minister Finance, which revealed that the IWH consortium will pay a 6% interest on outstanding payments until the sums are fully-paid in 2023.

With the deal termination, the MOF have now got to independently service the RM2.4 billion of sukuk which 1MDB took for the purposes of the Bandar Malaysia project, but of which not a single sen was utilised for the property development.

MOF will also have to bear the burden of the making payments to Perbadanan Pewira Hartanah Malaysia, a wholly-owned subsidiary of the Armed Forces Fund (LTAT) which received a RM2.7 billion contract to relocate the Air Force Military Base, of which nearly RM2 billion was still outstanding.

Then there is now the all-important question as to who will refund the RM741 million deposit paid to 1MDB vby the IWH Consortium?

Will 1MDB now refund the deposit, or will MOF have to once again bailout 1MDB by forking out the RM741 million as a result of the 1MDB real estate fiasco?

Arul Kanda must now resign as the President and CEO of 1MDB to take responsibility for the disastrous fiasco and embarrassment caused to the Government of Malaysia.  If Arul Kanda does not take responsibility for his failure, then we call on the Ministry of Finance, whose Treasurer-General Tan Sri Irwan Serigar is also the Chairman of 1MDB to terminate Arul Kanda’s contract.

Arul Kanda has clearly failed to deliver on his promise and has displayed more hype than substance.  His severe error of judgement, choosing the IWH Consortium for the purported “certainty of transaction execution” have now caused massive losses for the MOF.