Khazanah denies Medini high finance conspiracy
KUALA LUMPUR, Feb 9 — Khazanah Nasional Berhad yesterday denied allegations of questionable deals in the development of the ambitious multi-billion ringgit Medini integrated development in Johor.
The questions were raised in two letters to the editor published in Utusan Malaysia and revolved around the decision of a Khazanah- and EPF-linked company to lease land to Middle Eastern investors in Medini in 2007 and the subsequent buy-back of the land by the state asset manager from the same investors — purportedly at a higher price just a few years later, enabling the investors to flip the land for a profit despite not having paid for it in full.
The letters also alleged the existence of a complex web of related party transactions, with the Khazanah subsidiary partnering with a foreign investor to lease Medini land to other Middle Eastern companies in which the same foreign investor has a stake.
Other allegations raised were that the Khazanah-linked company in charge of developing Medini had paid out massive dividends of RM475 million in 2008 despite facing cash flow issues, 25 per cent of which went to the foreign partner even though it did not deliver satisfactory results.
The company at the heart of the controversy is Iskandar Investment Berhad (IIB), in which Khazanah holds 60 per cent equity. The rest of the shares are held by EPF and Kumpulan Prasarana Rakyat Johor
IIB had partnered with UWI Capital Ltd, which is registered in the British Virgin Islands and an associate company of Dubai’s Jumeirah Capital, to created Medini Iskandar Malaysia Sdn Bhd (MIMSB). This was then tasked to develop Medini.
IIB has a 75 per cent stake in MIMSB with UWI Capital holding 25 per cent.
At the same time, IIB signed a deal worth US$1.2 billion (RM3.6 billion) with a consortium of Middle East entities led by Abu Dhabi based Mubadala Development Company and Kuwait Finance House (KFH) to develop Medini.
One of the letters claimed that the controlling stakeholder in UWI Capital also owned a 10 per cent stake in Mubadala and KFH, which allowed him or her to realise profit from both the seller (MIMSB) and the buyers (Mubadala and KFH), and questioned the wisdom of IIB partnering with the foreign entity.
Khazanah said in its statement that it was normal for investors in large scale projects to ask for land to be returned if the schemes failed to deliver the desired returns, adding that it was an important feature to attract first mover investors.
“It also gives flexibility to investors to change their commitment levels and appetite for investments for long-term projects like Medini, which will take 25 years,” said Khazanah.
Khazanah said UWI Capital was invited to help develop Medini based on their track record of structuring, promoting and large infrastructure projects in the Middle East.
The state asset manager said that UWI was asked to be an equity partner and was not just a land broker, and also entered the deal with land valued at RM10 psf (per sq foot) as compared with RM7.30 psf as valued by CH Williams Talhar and Wong in 2006.
Khazanah noted that the letter raised questions as to why it would deign to partner with a company that was registered in the British Virgin Islands as if such companies had something to hide, and said that registering in tax havens was standard practice for all serious investors, including Khazanah.
It also defended UWI, saying that the company only received a net dividend of RM43 million after reinvestment.
Khazanah said that a large part of the land that had been returned or bought back from the investors was later resold by IIB at a 23.7 per cent premium.
In December last year, Sunway Bhd teamed up with Khazanah to buy 276.4 hectares of land in Medini for RM745.3 million.
Khazanah added in its statement that as a result of the global financial crisis, IIB and MIMSB had chosen to restructure rather than postpone projects in Medini but the Middle East consortium remained investors.
Noting that the letters had called for tighter monitoring of Khazanah, the state investor said that it had always practised the highest standards in corporate governance, including the establishment of independent executive and audit committees.
IIB was also in the news last month when it was reported that a former senior vice-president of an IIB subsidiary pleaded guilty to soliciting for bribes related to the Iskandar Malaysia development project.
Mohd Amin Suhaimi, husband to former IIB chief executive Arlida Ariff, was also charged with three counts of soliciting and taking bribes from a construction company to secure a tender worth RM40.8 million to build a boarding school in Pulai.
Arlida, who was headhunted by Khazanah, was removed from her position in 2010 amid speculation of alleged irregularities in the award of infrastructure contracts.
Medini is a 2,230-acre international mixed-used development, which is one of the core components of the Iskandar Malaysia special development zone in south Johor.
Among the major projects in Medini are Legoland, which is slated to open later this year, and a RM3 billion iconic wellness township to be developed by E&O and Khazanah and Singapore’s Temasek.