Malaysia’s decision to scrap the sale of a 60 per cent stake in its signature Bandar Malaysia project to a Malaysia-China consortium came as a rude shock, with the fallout set to spread from the 197ha township earmarked to house a terminus for the Kuala Lumpur-Singapore high-speed rail, to the rest of the economy.
Optimism over the perceived impact of massive Chinese deals – RM144 billion (S$47 billion) of which was unveiled in November after Prime Minister Najib Razak’s visit to Beijing – was deflated overnight.
The immediate effect was palpable on the Kuala Lumpur stock exchange, which closed 0.8 per cent lower yesterday, with smaller firms suffering the brunt of the selldown.
Iskandar Waterfront Holdings (IWH), the 60 per cent partner in the consortium with China Railway Engineering Corp (CREC), voluntarily suspended its listed arm Iskandar Waterfront City (IWC) in expectation of dumping by investors. Both IWH and IWC are controlled by tycoon Lim Kang Hoo.
Shares of construction firm Ekovest – also controlled by Tan Sri Lim but not suspended from trading yesterday – fell 18 per cent.
TRX City, a Ministry of Finance company, said on Wednesday that the IWC-CREC deal has been aborted as the consortium failed to pay the agreed RM7.41 billion despite several extensions to the initial deadline of June last year. TRX City said it now owns 100 per cent of the township development and is looking for a new master developer.
The joint venture partners said late on Wednesday that they are preparing a legal challenge against TRX City.
Given that the Bandar Malaysia deal is seen to have been brokered at a government-to-government level, the cancellation now trains the spotlight on the hundreds of billions promised by China in other projects across Malaysia.
Capital controls imposed by Beijing have already rocked Forest City, an ambitious development across four reclaimed islands in the Strait of Johor. Financial executives are expecting other China-led projects in Malaysia, including those by state-owned firms like CREC, to hit similar roadblocks.
Moreover, unlike the Bandar Malaysia project, many other deals with China have not even seen binding legal agreements. Among them are the RM43 billion Melaka Gateway port and partnership deals between e-commerce giant Alibaba and Malaysian firms that include a RM5 billion digital hub in Bandar Malaysia.