This article first appeared in The Edge Malaysia Weekly on December 23, 2024 - December 29, 2024

PETROLIAM Nasional Bhd’s (Petronas) wholly-owned KLCC Property Holdings Bhd (KLCCP) is believed to be in the midst of taking over Bandar Malaysia, the land near Sungai Besi on which the former Royal Malaysian Air Force (RMAF) base was located, from the Ministry of Finance (MoF) in a deal estimated to be worth as much as RM12 billion.

The discussions are ongoing, according to sources, who say KLCCP will be paying for the purchase of the 486 acres of bare land in two tranches.

“KLCCP is likely to pay up to RM6 billion and the rest will be paid on an ‘as and when’ basis,” says a source.

“The deal will see the government monetise its assets and at the same time pay off the creditors of Bandar Malaysia, which are mainly government funds. Only Petronas, which owns KLCCP, has the balance sheet to undertake such a transaction,” the source adds.

Sources tell The Edge that the plot ratio for Bandar Malaysia is said to be 1:10 and at RM12 billion for the 486-acre land, it is a pretty decent deal at RM566 per sq ft.

TRX City Sdn Bhd is the owner of both Bandar Malaysia and Tun Razak Exchange (TRX). It is a wholly-owned unit of Aroma Teraju Sdn Bhd, which is in turn owned by MoF.

According to sources, the sale is vital for Bandar Malaysia Sdn Bhd (BMSB) — the vehicle that owns the tract — to meet debt obligations.

It is not known if the deal is a straightforward land divestment or if KLCCP will be taking over landowner BMSB, or its unit Bandar Malaysia Land Sdn Bhd (formerly known as Omega Cartel Sdn Bhd). If the latter is the case, KLCCP will have to assume its debts.

BMSB’s audited balance sheet as at Dec 31, 2023 (FY2023) shows it had zero non-current liabilities. However, it had current liabilities of RM993.4 million in borrowings plus RM2.8 billion of amount owing to its immediate holding company, which is TRX City, up slightly from RM2.72 billion a year ago.

The notes to the FY2023 financial statement explain that the amount owing to the immediate holding company arose mainly from the purchase of land held for property development, advances made and expenses paid on behalf.

On the other hand, BMSB had a RM5.72 billion net amount due from its subsidiary, Bandar Malaysia Land Sdn Bhd, which is the biggest item in its non-current assets.

The amount owing from subsidiary arose mainly from the sale of land held for property development, advances made and expenses paid on behalf. These amounts are unsecured, interest free and repayable on demand except for RM933.44 million (RM1.36 billion in FY2022), which carry a yield-to-maturity of 6.05% annually, the notes to the financial statement say.

BMSB’s cash and bank balances stood at RM23.13 million as at end-2023, up from RM12.12 million a year ago. This includes RM10.85 million pledged for certain banking facilities and amounts placed in various finance service reserve accounts to meet the debt servicing requirements of the company. In short, the company’s cash and cash equivalents were only RM7.78 million.

Notably, BMSB has fully repaid its two tranches of sukuk papers totalling RM2.4 billion. The last bullet payment of RM1 billion was due this year.

The RM2.4 billion sukuk murabahah programme was to finance the Pangkalan Udara Kuala Lumpur Relocation project from Sungei Besi.

In 2015, Lembaga Tabung Haji (TH) paid upfront for a plot of yet to be developed land in TRX. According to news reports, TH bought the land from 1Malaysia Development Bhd (1MDB) for RM188.5 million in 2015, and its property arm TH Property Sdn Bhd was supposed to develop a high-rise residential tower.

TH is believed to have obtained rights over some parcels in Bandar Malaysia as additional collateral because of the upfront payment for the land in TRX City.

The Edge understands that an estimated RM1.7 billion was later transferred to 1MDB through TRX City (formerly 1MDB Real Estate Sdn Bhd), leaving BMSB with the remaining RM600 million, which was insufficient to cover the relocation costs of the RMAF base — including its nine-hole golf course — to Sendayan near Seremban.

Later in July 2015, the 1MDB board was allegedly told that the funds were not used to develop Bandar Malaysia because there was no need to do so at the time and that the money could be redeemed by 1MDB when necessary.

KLCCP is no stranger to huge strategic property-related deals, considering its balance sheet which allows it to take a long-term view.

In the past, KLCCP had been used by Petronas to undertake massive projects. This goes back to the 1990s when it acquired a 51% stake in the late T Ananda Krishnan’s Sri Kuda Sdn Bhd — later renamed KLCC Holdings Sdn Bhd — to develop Kuala Lumpur city centre. Petronas then bought the remaining 49% stake in KLCC Holdings in 2002 for an undisclosed sum.

Today, the national oil firm has a stapled real estate investment trust (REIT) called KLCC Stapled Group, comprising KLCCP and KLCC REIT. KLCC Holdings has a 64.68% stake in KLCC Stapled Group while the Employees Provident Fund has 11.27% equity interest.

According to its website, KLCC Stapled Group is a diversified office-focused REIT comprising five Grade-A offices including the Petronas Twin Towers and Menara ExxonMobil. The master developer of the 100-acre KLCC development also has Traders Hotel Kuala Lumpur, Mandarin Oriental and Kompleks Dayabumi in its portfolio.

When contacted, KLCCP declined to comment. At press time, MoF had not responded to questions from The Edge.

The Edge understands that the land near Sungai Besi will be developed in several phases, possibly five. Sources say current tenants of the site will not be affected as the entire 486-acre development will take 50 to 60 years to complete.

Theme park operator Sim Leisure Group Ltd, through Sim Leisure Escape Sdn Bhd, entered into an agreement with BMSB in November 2023 to develop, construct, operate and maintain Escape Park @ KL Base. The theme park will take up 75 acres of Bandar Malaysia on a 15-year lease with an automatic extension of a further 15 years, according to the company’s announcement to the Singapore Exchange.

Sim Leisure Group, which runs Escape in Penang, Ipoh, Petaling Jaya and Johor, is also the franchisee of KidZania in Singapore and Malaysia. According to its statement, Escape Park @ KL Base will have 70 games and activities and 200-room themed accommodation for its guests. The theme park will be developed in three phases. When contacted, Sim Leisure Group declined to comment.

KLCCP is not the first prospective buyer of Bandar Malaysia.

In December 2015, IWH CREC Sdn Bhd acquired a 60% stake in the Bandar Malaysia project for RM7.41 billion. However, the share sale agreement lapsed in May 2017.

IWH CREC was a 50:50 joint venture between Iskandar Waterfront Holdings Sdn Bhd and China Railway Engineering Corp (M) Sdn Bhd, a unit of China Railway Group Ltd.

In 2018, IWH CREC renegotiated the deal with the Pakatan Harapan government and signed a framework agreement to revive the deal. However, under the Perikatan Nasional government, the deal was mutually terminated in July 2021. IWH CREC obtained a refund of RM1.54 billion from MoF following the termination.

The KLCC group is well-known for transforming the old racecourse into the iconic Petronas Twin Towers in the centre of Kuala Lumpur. Will it replicate this success with the former air force base, which is just about 6km away? But more importantly, the sale will enable TRX City to raise fresh capital that will come in handy to pare down debts. As at end-2023, TRX City’s current liabilities included borrowings of RM2.14 billion and amount owing to its immediate holding company, namely Aroma Teraju, of RM1 billion. 
 

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