(Aug 14): TRX City Sdn Bhd and its joint-venture (JV) partner, Australian property outfit Lendlease Corp, are looking to raise more than RM2.5 billion ($796 million) to develop a 17-acre parcel within the 70-acre Tun Razak Exchange (TRX) project in Kuala Lumpur. The parcel is slated for a mixed-use development known as the Lifestyle Quarter.
Two sources familiar with the matter say the two JV companies are looking at two tranches of funding — the first of RM1.875 billion specifically for the retail portion of the development, and the second, RM700 million for the residential portion.
The fresh funds sought by Lendlease and TRX are more of a bridging loan to kick-start the development, considering that the duration of the financing is for only a three-year period.
“They (Lendlease and TRC) could be testing the market, gauging the response, then come up with their plan. What instrument they plan to use — debt paper or a loan — is not clear as yet,” one of the sources says.
Several banks have already been approached, according to the sources, with the JV outfit looking for offers to be made by the banks. However, while talks have commenced, they have yet to reach the stage of a legitimate request for proposal.
The banks that are showing interest include HSBC, while a few Singapore banks are also understood to be in the running.
The sources highlight that Lendlease is likely to have good ties with Australia and New Zealand Banking Group Ltd, which may be roped in when the time comes.
Other than having a direct presence, ANZ Banking Group also has a 23.78% stake in AMMB Holdings Bhd via ANZ Funds Pty Ltd. AMMB Holdings wholly owns AmBank (M) Bhd, the sixth largest banking group in Malaysia. It is a well-known secret that ANZ is looking for a buyer for its stake in AMMB Holdings.
Meanwhile, local banks, including RHB, Malayan Banking Bhd and CIMB Bank Bhd, have been lukewarm in their response.
It is understood that the Ministry of Finance, which wholly owns TRX, is unhappy with the cool response from the local banks and has questioned their lack of interest.
“Some of them said the property market, both commercial and residential, was still soft. Others were hesitant due to TRX’s old parent, 1Malaysia Development Bhd (1MDB),” another source says.
Why would HSBC and Singapore banks be willing to fund the development, but not the local banks? Treasury secretary-general and chairman of TRX Tan Sri Mohd Irwan Serigar Abdullah is one of those who have raised this question.
To put things in perspective, in June, HSBC committed to invest US$250 million, slightly more than RM1 billion, to build its future headquarters in TRX as part of the British banking group’s plan to develop Malaysia as its Asean financial hub.
To recap, TRX roped in Lendlease more than three years ago, in June 2014, to be a major investor and partner to develop the Lifestyle Quarter. However, there has been little progress in the developments since then.
Reports have it that the estimated development end value of the lifestyle portion is expected to be about RM8 billion, while the entire TRX has an estimated gross development value in excess of RM40 billion.
The development plans include building a luxury hotel, six residential towers, a large-scale retail component and a park, with Lendlease holding 60% of the JV and TRX the remaining 40%.
“The retail portion usually has a very long gestation period, whereas for the residential component, individual loans are being sought. These loans are for a short duration, it seems more like a bridging loan,” says the source.
TRX was formerly known as 1MDB Real Estate Sdn Bhd and was a unit of the beleaguered 1MDB before it was transferred to the Ministry of Finance.
The scandals surrounding 1MDB have been ongoing for a few years, largely involving accusations of misappropriation of funds. While there have been no charges pressed locally, there has been much news coverage on the international front.
The 1MDB saga involves at least 10 countries, from Singapore to those in the Middle East and North America, and includes the use of shell companies in offshore wealth centres, with certain individuals spending abundantly on jewellery, paintings and yachts, and basically living it up. Even though TRX is no longer part of 1MDB, it is likely that the stigma remains.
For its financial year ended March 31, 2016, TRX registered an after-tax profit of RM15.39 million on revenue of RM432.27 million. As at March 31 last year, it had current assets of RM11.43 billion and non-current assets of RM1.45 million against current liabilities of RM4.7 billion with zero long-term debts.
Lendlease has a market capitalisation of A$ 9.6 billion. For its financial year ended June 2016, it registered net profit of A$698.2 million from A$15.09 billion in revenue.
This article appears in Issue 1175 (Aug 14) of The Edge Malaysia which is on sale this week
