By Khairie Hisyam
State investment fund 1Malaysia Development Berhad (1MDB) saw RM1.85 billion in actual losses last year after taking away its paper profit of RM2.73 billion from property revaluation.
According to 1MDB’s 2013 annual report, it recorded RM878 million in pre-tax profits for the financial year ended March 2013. But this figure took into account fair value gains of RM2.73 billion which came from revaluing the fund’s investment properties — essentially paper gains.
Overall, 1MDB’s investment properties for FY13 stood at RM6.18 billion, an increase of more than threefold compared to RM1.78 billion held in FY12.
Out of the additional RM4.4 billion in properties, however, only RM2.73 billion had been recognised as gains, leaving an additional RM1.73 billion yet to be revalued.
Last year saw 1MDB acquire 15 additional plots of freehold land in Sungai Besi for its Bandar Malaysia project through its wholly owned subsidiary 1MDB Real Estate Sdn Bhd (1MDBRE).
These add on to the 34 plots of freehold land it acquired in 2012 for the Tun Razak Exchange (TRX) project. Of the total of 49 land titles, 46 had been transferred to 1MDBRE.
Titles for the remaining three plots are pending transfer to 1MDBRE, said 1MDB in its annual report.
Paper gains enabled by blueprint delay
According to the annual report, the land held for the Bandar Malaysia and TRX projects were classified as investment properties in accordance to the Malaysian Financial Reporting Standards (MFRS), which 1MDB adopted for FY13 in lieu of the previous Financial Reporting Standards (FRS).
The classification was made because the blueprints for both developments had not been finalised.
MFRS stipulates that fair value gains from investment properties are to be recognised in profit and loss, implying that the RM2.73 billion in revaluation gains were only recognised in 1MDB’s profit and loss statement because the fund had not finalised the blueprints for both projects.
Once finalised these land plots would no longer be included in 1MDB’s investment properties, meaning any further gains from revaluation would no longer be recognised as profit.
Notably, for 12 of the 15 land plots acquired in Sungai Besi last year, 1MDB footed a bill of RM1.6 billion for the relocation of the land occupants — the Royal Malaysian Air Force (RMAF) — to eight relocation sites.
For this purpose, 1MDB entered into eight development agreements with the government to develop replacement facilities on each relocation site as well as to complete all necessary transfers for RMAF.
The net obligation of RM1.6 billion for the relocation was financed by a Murabahah sukuk with a maturity period ranging from seven to 10 years.
Land transferred to subsidiaries
Last December saw 1MDBRE selling 46 land plots, the titles of which had been transferred to it by its parent fund 1MDB, to its subsidiaries.
On Dec 3 2013, 1MDBRE’s wholly owned subsidiary KLIFD Sdn Bhd, which undertakes the TRX project, purchased the 34 plots of freehold land which 1MDB acquired in 2012 for the TRX development for a sum of RM1.9 billion.
The other 12 plots of freehold land — which 1MDB acquired in 2013 for Bandar Malaysia project and the titles of which was transferred to 1MDBRE after March 31, 2013 — was sold to 1MDBRE’s wholly owned unit Bandar Malaysia Sdn Bhd for RM4.2 billion.
In total the disposals come to some RM6.1 billion in transactions.
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