This article first appeared in Forum, The Edge Malaysia Weekly on April 17, 2023 - April 23, 2023

Behind the sale of Iskandar Malaysia Studios (IMS) is a story of uncontrolled development and incoherent policies that resulted in the grand plans for a structured regional growth centre in Iskandar Malaysia going awry.

IMS was established in 2014 in Iskandar Puteri and designed to spearhead investments into the country’s creative industry. It has an integrated film and television facility and was used to make movies and TV shows such as Crazy Rich Asians, Marco Polo 2, Asia’s Got Talent and Lost in the Pacific.

Its facilities include five state-of-the-art stages, stage pits for water filming and dry use, and two 12,000 sq ft TV studios that are fully equipped and can accommodate large-audience TV shows. Khazanah Nasional Bhd had invested in IMS since its inception in 2014, with the view that it would become a sought after studio in the region.

The IMS — previously known as Pinewood Iskandar Malaysia Studios — was supposed to provide thousands of jobs and have a multiplier effect on the domestic economy. IMS could still become a popular studio, but the major difference now is that it will be owned by a Singapore company that has carved a niche as a leading production house of dramas and movies.

In an announcement two weeks ago, GHY Culture & Media Holding Co Ltd (GHY) said that it was acquiring an 80% stake in IMS from Studio Management Services Sdn Bhd (SMS) for a total of S$11.49 million (RM34.44 million). The transaction value is just above IMS’ net asset value of RM32.5 million.

It does not take into account the millions that Khazanah had invested in IMS. When the project was launched in 2014, Khazanah had stated that it would cost RM400 million to build the facilities, which are located on an 80-acre site. It was expected to create about 8,000 jobs and contribute a multiplier effect of RM1 billion to the economy.

Which brings us to the question: Why did Khazanah not demand a premium for all the investments and efforts spent on building up the studio over the last nine years?

The reasons can be traced to what has happened in Johor and the federal government since 2013.

Khazanah cannot be blamed for divesting IMS’ operations as it no longer controls the narrative of development in Iskandar Malaysia. 

In 2006, the sovereign wealth fund mapped out a master plan for the development of the southern region between the two causeways connecting Johor to Singapore. Between 2006 and 2017, it said it had managed to attract committed investments of RM216 billion to Iskandar Malaysia.

However, from 2015, Khazanah’s attention to Iskandar Malaysia gradually fizzled out. One of the reasons could be the uncontrolled development orders allowed by the state that were outside the master plan. The Forest City project and its man-made islands is an example.

Today, the utilisation of IMS is low. Heavy promotion and discounts are required to lure production companies to make movies or dramas there. Apart from funding, preferably from the government, it needs a firm commitment from the state and federal governments that competing studios would not be allowed to set up operations in the region.

Under the Iskandar Malaysia master plan, there is room for only one studio and ancillary businesses built around the entertainment industry. There is no place for another studio in the area in the mid-term.

But now, there is no certainty that if the IMS studio is a success in the future, the state will not endorse the setting up of another establishment that offers similar services. Without such assurances, no private venture would pay a premium for IMS.

Inconsistent policies have affected the property development and oil and gas (O&G) sectors in Johor.

The state government has given approvals for massive property development projects in the Iskandar region that were not in the master plan. Developers from China took advantage of this and built thousands of units of condominiums and commercial facilities.

It led to massive overbuilding and created a huge overhang in the Johor property market. Many of the buyers are from China and Singapore who do not live in the developments. Forest City is one such project that has turned into a ghost town. In Danga Bay, Country Garden’s maiden high-rise condominium and mixed-development project was hit by a string of delays, causing several buyers to take the developer from China to court.

The uncontrolled development led to Johor being the state with the highest number of unsold property units in the country.

It could also be the reason why UEM Sunrise Bhd, Khazanah’s property development arm, which has 77% of its land bank in Johor, has diverted its attention in recent years to the Klang Valley.

The uncontrolled development approvals are also giving investors in the O&G sector the jitters.

Since 2017, Petroliam Nasional Bhd has pumped billions into the setting up of a petrochemical plant with a refinery in Pengerang. Many local and foreign companies have also invested billions to build petrochemical plants, storage tanks and other ancillary services, with a view of it becoming the hub in southern peninsular Malaysia that will rival Singapore.

However, the Johor government has allowed other O&G hubs to be established in the state. For instance, it endorsed the setting up of an energy gateway in Muar in 2021.

When competing facilities spring up in the same region, investors tend to shy away from taking a long-term view on their investments, especially when there is a long gestation period before they make returns.

Prior to 2018, the Khazanah of old, under Tan Sri Azman Mokhtar, had a strategy of entering into partnerships to build up entities over a long period. Upon a project’s maturity, Khazanah would dispose of its interest for a hefty return.

Khazanah’s realisable asset value and new worth adjusted (NWA) was RM157 billion and RM116 billion respectively as at end-2017. NWA grew at 10% over a 10-year period.

When the government changed in 2018, prime minister Tun Dr Mahathir Mohamad initiated a change in strategy at Khazanah — to dispose of assets rather than nurturing them through partnerships over time before seeing returns.

This strategy change also led to a reduction in expenditure for managing Khazanah.

However, the Khazanah of today does not have the financial muscle to do the heavy lifting required to create value in entities such as IMS over a period of time without expecting immediate returns. Today, unless there is funding from the government, very few private entities will fork out a premium for ventures with a long gestation period to realise returns.

In the case of the studio, Khazanah will dispose of IMS, which is the operating company, and lease the land on which the studio is located.

GHY, which is the new majority shareholder of IMS, had previously used the facilities to produce dramas and films. The acquisition of IMS is part of a strategy to expand its reach in the region. The studio will be used to produce regional content for international audiences and give rise to potential co-production ventures with international names.

The project’s ultimate objective of creating jobs and making the studio an economic catalyst for the creative industry could still be realised — unless there are flip-flops on the investment policies of the state and federal governments.

M Shanmugam is a contributing editor at The Edge

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