TRX City, owned by Malaysia's finance ministry, on Wednesday (May 3) announced it had terminated an agreement for a China Railway consortium to be the master developer of Bandar Malaysia - a major residential and commercial real estate project, set to house a terminal for the high-speed rail (HSR) line connecting KL to Singapore on the basis it "failed to meet payment obligations outlined in the Conditions Precedent”.
This has been disputed by China Railway Engineering Corp (CREC) and Iskandar Waterfront Holdings (IWH), which agreed to buy a 60 per cent stake in the project originally being developed by scandal-plagued 1Malaysia Development Berhad (1MDB) in 2015.
"To-date, IWH CREC Sdn Bhd (ICSB) has fulfilled all the required payment obligations under the SSA on its part towards TRX," it said in a statement Friday, requesting for the completion of the sale.
"ICSB has sufficient financial resources and capabilities to ensure the smooth and successful execution and implementation of the development of Bandar Malaysia."
Macroeconomic analyst Hoo Ke Ping believes this is a smokescreen statement, to lessen the impact of tumbling share prices for IWH-linked companies in the wake of the news.
China, he said, refused to give the green light for the project as it is no longer in a position to invest in Bandar Malaysia due to stringent capital controls. China's refusal to give the go-ahead was a major factor listed for problems with the sale, according to an internal Malaysian Finance Ministry document viewed by the Wall Street Journal.
"All these projects China committed to from 2015 until now was committed without fully understanding China's worsening financial conditions," Dr Hoo told Channel NewsAsia.
"(So now), Chinese projects, whether state owned enterprises or private, as long as they're not strategic, they're out. There must be a strategic meaning to China's geopolitical interests."
DOES CHINA THINK IT WILL LOSE KL-SINGAPORE HSR BID?
The Bandar Malaysia investment had been strategic for China, but perhaps no longer.
"The other argument for why China didn't want to continue with Bandar Malaysia is they believed they wouldn't get the high-speed rail and that Japan stands a better chance," said Dr Hoo.
Insiders said Beijing had invested in the project, believing it would be awarded contracts to develop the KL-Singapore HSR, estimated to be worth some US$23 billion. Malaysia was told it "must try its best" to help China win the project, reports The Star.
However, Japan could now be a front-runner – something Beijing is not too happy about.
MALAYSIA'S BETTER BARGAINING POSITION
Some have cast doubt on the idea that failure to meet payment obligations was the main driver behind Malaysia's Finance Ministry terminating the deal.
People familiar with the matter said IWH CREC was taken aback by how sudden the decision was, suggesting Malaysia had been willing to drop it out of their own strategic interests.
Bandar Malaysia's worth has appreciated since 2015, now that it has infrastructure development and planning approvals. At the time of the signing, the IWH-CREC consortium valued the land parcel at around RM12.35 billion (US$2.85 billion).
“(Today) based on an illustrative selling price of RM2,000 psf, Bandar Malaysia alone would carry a total market value of RM42 billion," said Kenanga Investment Bank.
Sources Channel NewsAsia spoke with have said that Malaysia is confident it has enough time to find a better buyer with more favourable conditions.
This time, however, Malaysia may need to be more careful with the terms - given it had been accused of "selling out" to China.
Malaysia and China had agreed to at least US$34 billion worth of deals during Prime Minister Najib Razak's visit to his country's largest trading partner in late 2016.