New Malaysian Government Promises Funds to Finish KL Skyscraper

Malaysia’s new government will complete a skyscraper project started by former Prime Minister Najib Razak even though U.S. $765 million for it was allegedly embezzled by the scandal-plagued state fund 1MDB, Finance Minister Lim Guan Eng said Thursday.

The government will invest 2.8 billion ringgit ($700 million) to finish the Tun Razak Exchange (TRX) project, he said.

After meeting with master developer TRX City Sdn Bhd (TRXC), Finance Minister Lim Guan Eng said the cabinet agreed on Wednesday to invest in the project to complete the infrastructure work as a form of “damage control.”

“The TRX project will be completed despite more than RM 3 billion of government funds misappropriated from TRX City Sdn Bhd by 1MDB,” Lim said in a statement, referring to the cash-strapped sovereign wealth fund, 1Malaysia Development Berhad.

The 70-acre project includes 26 buildings highlighted by The Exchange 106, a 106-story skyscraper. The entire project is named after Najib’s late father, Malaysia’s second prime minister.

“As a result of the misappropriation of funds, TRX City Sdn Bhd does not have enough money to fulfill its obligations as the master developer,” Lim told a news conference at the Finance Ministry in Putrajaya.

He said 3.07 billion ringgit ($765 million) from a total of 3.7 billion ringgit ($923 million) in government guaranteed borrowings, extended advances and transfers as well as land purchases for TRX had been misappropriated “mainly for 1MDB loan repayments.”

“The alternative of not coming up with a funding of 2.8 billion ringgit and not completing the project, is to pay 3.51 billion ringgit ($875.6 million) in compensation claims and have the eyesore of an abandoned mega-project in the heart of Kuala Lumpur.”

Najib responds

Lim’s comments drew praise from TRXC but condemnation from Najib, whose Barisan Nasional coalition was voted out of power in last month’s general election.

In a Facebook post, Najib welcomed the Pakatan Harapan (PH) government’s decision to continue with the project that would bring “tens of thousands of new jobs and establish a world-class financial center right here in Kuala Lumpur.”

But the former prime minister accused Lim of “spreading half-truths and outright lies in his statement today about TRX City Sdn Bhd.”

The new government has launched an investigation into alleged massive corruption committed at 1MDB, which Najib founded in 2009.

Since losing the election Najib has been barred from leaving the country and has been questioned twice by the Malaysian Anti-Corruption Commission in connection with the 1MDB affair. But he consistently has denied that he committed any wrongdoing with money linked with the fund.

The scandal, however, has led to money-laundering investigations in the United States and other countries. The U.S. Justice Department has described the alleged theft of billions of dollars from 1MDB as “the worst kleptocracy scandal in recent times.”

Aside from the Tun Razak Exchange, 1MDB was involved in the redevelopment of a Royal Malaysian Air Force airfield in Kuala Lumpur into “Bandar Malaysia” a transport-oriented development built around the planned northern terminus of the proposed Kuala Lumpur-Singapore high-speed rail link.

In December 2015, 1MDB sold a 60 percent stake of Bandar Malaysia to a joint consortium between Malaysia and China for 7.41 billion ringgit ($1.85 billion). The deal fell apart in May after the consortium failed to meet its payment obligations.

Former 1MDB subsidiary

Azmar Talib, the CEO of TRX City who attended Thursday’s press conference with Lim, said that while construction of the skyscraper was 92 percent complete, the project as a whole was only 20 percent finished.

The state news agency Bernama reported that Lim instructed TRCX to lodge reports with police and a special 1MDB investigation panel over project-related funds that were allegedly taken by 1MDB.

TRXC began as a subsidiary of 1MDB under the name of 1MDB Real Estate Sdn Bhd. Its name changed when it became a subsidiary of the Ministry of Finance in March 2017 after it was unable to secure bank financing. Najib served as prime minister and finance minister at the time of the transfer.

“Completing TRX will allow the full value of the project of at least 7.6 billion ringgit ($1.9 billion) to be realized,” Lim said in announcing the financing.

“This will help to recoup and repay the TRX City borrowing, including the sums misappropriated by 1MDB, recover all funding investments and opportunity costs as well as potentially achieve a small surplus.”

1MDB insolvent since 2016

Najib questioned how the funding could be considered a bailout if the goal was to achieve a profit.

Previously, in a 2017 speech at an event called Invest Malaysia, Najib praised TRX as proof of the success of his “rationalization” plan to fix 1MDB which he attributed to a “lapse in governance.”

“Rather than funnel good money after bad to cover up any issues 1MDB may have faced … I instructed the rationalization of the company and it is progressing well,” Najib said at the time.
“Indeed, many of the assets formerly owned by 1MDB are thriving.”

On May 23, just days after the new government took over in Malaysia, 1MDB director Kamal Mohd Ali told the finance ministry that investments were “a scam” and the development fund had been insolvent since 2016.

Kamal and Norazman Ayob, the two remaining members of 1MDB’s board, were summoned by Lim to brief the ministry on the company’s state of affairs after he learned that the Malaysian government had been making debt payments on its behalf since April 2017.

“It was no longer effectively a growing concern. It was already insolvent,” Lim said after the briefing.

In his Facebook posting, Najib said no TRXC funding was misappropriated by 1MDB.

He said there were inter-company loans of about 3 billion ringgit ($748 million) from TRXC to 1MDB, but those loans were repaid by March 31, 2017, through cash payments and other means.

“Once again, I caution YB Lim Guan Eng against making such factually incorrect statements as part of the PH’s political vengeance against me and the previous [Barisan Nasional] government,” Najib said.

“Not only is it unprofessional, it spooks investors in the currency, bond and stock markets. Surely the well-being of our economy is much more important than the issuance of politically motivated statements?”