On May 3, TRX City, a Malaysian government-controlled entity involved in administering the Bandar Malaysia development deal, permitted to lapse the shareholding agreement that gave a consortium of China Railway Engineering Corporation (CREC) and Malaysia’s Iskandar Waterfront Holdings (IWH) a 60% stake in the project. In an apparent surprise to CREC and IWH, TRX publicly declared the move was made due to the consortium’s failure to fulfill their commitments. The $1.7 billion project that stretches across 197 hectares was designed to house the terminus stations for the Kuala Lumpur-Singapore High-Speed Rail project.
TRX City, a former subsidiary of 1MDB that is now owned by the Ministry of Finance, said the government retook control of the project “for the benefit of the Malaysian people” and announced that the project was brought to an end due to the consortium failing to meet its payment obligations. The Ministry of Finance also characterized the decision as a result of “huge discrepancies in expectations” between the two sides, including an alleged “shopping list” that China had presented on unrelated terms, conditions and concessions it sought as a result of its investment in this project and other financial commitments to Malaysia.
Sources close to the project (as reported on by Malaysia’s Star newspaper) indicated the “shopping list” had Beijing seeking to leverage its bailout of 1MDB and its investment in the Bandar Malaysia project into government support for investment awards and terms, including with regard to the highly anticipated Kuala Lumpur-Singapore High-Speed Rail project.
The following quotes from the Star article by an unnamed source allegedly close to the negotiations are alarming.
“There were many differences in the detailed terms between the Chinese and MoF officers. The Chinese side has come out with a shopping list for Malaysia to fulfil, but Malaysian officers cannot commit to many of the proposed terms due to national interest and social reasons.”
“China said it had done its part in 2015 to help Malaysia overcome its financial problems during critical times. Now Malaysia must play its part to ensure the Chinese investment in Bandar Malaysia gets maximum returns.”
“Malaysian officers could not agree to proposals that the HSR terminus be owned by China, as it will be against national interest to allow strategic assets to be owned by foreigners. But to the Chinese, you would have to sort these things out yourself.”
Finally, the article went on to observe, based on additional comments from this source,
“…terms proposed by the Chinese included the expectation that Malaysia would “try its best” to help China win the high-speed rail (HSR) project linking Kuala Lumpur and Singapore.”
Malaysian officials apparently realized the risk of proceeding with these assumptions/conditions from Beijing underpinning the award process. Chinese officials are scheduled to travel to Malaysia in the coming days to try and salvage the project. Prime Minister Najib Razak is also scheduled to visit Beijing from May 13–15. It seems likely Beijing will seek aggressively to recover its position. The revelations detailed above – if corroborated – could well hang over China’s presence in other countries in the region and globally, where quid pro quo arrangements have been suspected.
The announcement has already created severe financial repercussions, with IWH suspending trading in expectation of a massive selloff and the Kuala Lumpur Composite Index falling on the news, also fueled by speculation over the validity of China’s broader set of commitments, even beyond this project. The lapse of this deal could have a ripple effect on the perceptions and assumptions involved in other countries where China has committed to large capital infusions.
TRX City is now looking to restart the tendering process and attract another foreign partner. According to Malaysia officials, this development will not impact the timetable for the HSR project.