By Chan Quan Min
Tiger’s first move in the world of corporate finance, M&A to be exact, is to propose a merger between 1MDB’s flagship financial district development, Tun Razak Exchange (TRX) and the government’s affordable housing programme, PR1MA. Allow Tiger to explain why TRX and PR1MA are simply perfect for one another.
Tiger is not one to sit on his paws while watching so-called corporate big shots fumble at their jobs. Surely Tiger can beat most of these corporate fat cats at their own game.
So this jungle cat decided long ago to join the fray. Look out corporate jungle, here comes Tiger!
Some weeks back, Tiger hinted at landing a cushy position as CEO of a big GLC (government-linked company) but unfortunately was looked over for other more ‘deserving’ candidates. Since then Tiger has been exploring other endless possibilities.
Last week, Tiger put his name forward for official appointment to head a new government body to act upon the high incidence of graft in the civil service brought to light by the Auditor-General’s report. Tiger even came up with a name and acronym for the new body; Jimat 1 Malaysia Agency for Transformation or J1MAT for short. Snappy name isn’t it?
Last Tiger heard a special committee has been set up to study and scrutinise the Auditor-General’s report. But it could be a while yet before they call Tiger in to get J1MAT going. A creature of action, Tiger has taken up a well unpaid position in the private sector to tide him over before that fateful appointment as chairman of J1MAT.
Here’s to putting some of those critical thinking skills to good use. Tiger is joining the lucrative world of corporate finance, M&A or mergers and acquisitions to be exact, because that’s where the money is.
First order of business: A sensational merger of 1MDB’s (1Malaysia Development Bhd) flagship project, Tun Razak Exchange (TRX) and the government’s newly formed affordable housing scheme, PR1MA (1Malaysia People’s Housing Programme).
This TRX – PR1MA tie-up could very well be the corporate marriage of the year, edging out last month’s low-key coupling of Quek Leng Chan’s son and Chua Ma Yu’s daughter.
Tiger promises to be generous with the invites. Come one, come all. The more the merrier. People mountain, people sea.
This being a corporate marriage a simple exchanging of wedding rings just wouldn’t do. Instead, there is going to be a humongous lit-up crystal ball and we are all going to place one hand right on top of it.
After a quick countdown there will be dazzling laser light show, emanating out from the same crystal ball of course. Cue in music, something appropriate for such a joyous occasion, like the 90s classic ‘two become one’ by the Spice Girls.
We will go easy on the fireworks; in this day and age fireworks can be a little tacky. We opt instead for a magic show. White tigers jumping through rings of fire held out by showgirls, the full works, à la Las Vegas.
Ahem, before getting carried away with the wedding plans, allow Tiger to first explain why combining TRX and PR1MA would in one fell swoop fix all that is broken with both schemes.
PR1MA is an ambitious government initiative to build some 500,000 affordable homes by the year 2018. Under the first phase announced in the 2013 Budget, a target was set to launch 80,000 affordable homes by year-end.
So far, the pace of construction has been lethargic. According to calculations by Kluang member of parliament Liew Chin Tong, PR1MA would require 105 years, at the current pace of construction, to reach its lofty target of building 500,000 homes.
But that is not all. The PR1MA scheme has come under criticism of late. A KiniBiz feature article out just this Tuesday, ‘PRIMA – good intentions, questionable implementation?’ exposes these concerns in depth.
From the feature article, Tiger homed in on one interesting revelation by PR1MA Corp. The affordable housing programme contends that contrary to public perception, government land allocated for PR1MA to date is actually very limited and insufficient even for the 80,000 homes targeted for launch by end-2013.
It doesn’t take much to see the logic here. To build affordable housing, some 500,000 homes by 2018 no less, you will need land, and lots of it. To deprive PR1MA of landbank is to cripple the programme even before the starting line.
This is where 1MDB’s flagship project, TRX comes into the picture. The new financial district for Kuala Lumpur to be built from the ground up for a gross development value (GDV) of RM27 billion has a sizeable 28 hectares parcel of land just kilometres from the city centre.
Wait, a new financial district? Don’t we have one of those already? Yes we do, and it’s called the ‘Golden Triangle’.
But the most critical of questions is: Why build more office space, in TRX’s case, a whopping 9.6 million square feet when we are facing a city-wide glut in office space?
In the first-half of the year, the occupancy rate of office space hovered at the 78% mark, with older office blocks far emptier than newer developments. And soon, we could be drowning in office space as occupancy rates fall further because of a supply-demand mismatch. Supply, according to analysts, will continue to outstrip demand for the foreseeable future.
Not to worry, a TRX – PR1MA merger will surely go some way in changing that by building much needed affordable homes instead of office towers. Tiger has this to say, it’s a far more sensible plan, all things considered.
Residential properties continue to be in high demand, property experts will gladly tell anyone. Prospective home buyers in search for a place to call their own will also very gladly attest to the sharp increase in house prices over the past decade. Office space, meanwhile, is quite possibly oversupplied by double the actual demand, according to a CIMB Research paper released last month.
That aside, TRX’s parent 1MDB is also very wealthy. We’re talking billions here. Now, Tiger knows its common knowledge out there that getting married into money is an aspiration for many, no need to be shy about it.
At last count 1MDB has, over the past five years, issued close to RM20 billion in bonds. But here is the catch, 1MDB spent most of the proceeds this year acquiring two massive power generating assets namely, Tanjong Energy and Jimah Teknik.
Not to worry, 1MDB recently revealed long held intentions to list both Tanjong and Jimah power assets in an IPO early next year. The public offering could raise billions of ringgit in cash and should settle any cash flow issues 1MDB might be facing from its latest shopping spree.
That settled, let’s also not forget that while 1MDB has what appears to have the look and feel of a serious business concern – senior management all corporate high-flyer types dressed in sharp suits – the company is still very much a government agency with all but a corporate veneer.
In a written parliamentary reply dated Sept 23, 2013, the Ministry of Finance set the record straight on 1MDB’s role and responsibilities:
“1MDB will continue to assume the Malaysian Government’s mandate to spearhead strategic economic initiatives that will produce long-term sustainable development, including social projects that emphasize the progress of human capital.”
Need this Tiger add that building phallic glass and concrete structures for unnecessary office space does not equate to ‘social projects that emphasise the progress of human capital’ or ‘initiatives that will produce long-term sustainable development’ quite as much as affordable housing.
Indeed, 1MDB must recognise that the government has set the bar high on its ‘mandate’. 1MDB is not just any corporation out there chasing profits, it has to also take into consideration the socio-economic impact of its decisions.
One word of advice, the law of the jungle says; go for the kill quick and sudden and ruthlessly. So to sum up, TRX and PR1MA are a perfect fit because:
First, TRX has the landbank PR1MA so desperately craves. Even this jungle cat knows having a matrimonial homestead in place before the actual marriage is a must.
Second, TRX’s parent 1MDB has the cash, or at least the potential to raise even more cash. Basically, PR1MA could very well be set for life. Financial issues place a great strain on marriages so it makes sense to seal the deal only when financially secure, or alternatively, if you know your spouse’s parents are loaded.
Third, TRX will be able to ride on PR1MA’s noble affordable housing cause to fulfill its mandate of sustainable development. Often, in high net worth marriages one spouse brings home the bacon while the other engages in charity work, this is much the same.
Finally, PR1MA will have the good sense to steer TRX away from dubious investments, such as building commercial office space during a glut. Sometimes you must rely on your spouse for sensible advice.
Before Tiger’s last word on this corporate marriage of the year (if only), this union needs a snazzy new name. How about PR1MAX? But wait, isn’t that a Petronas trademark? Hang on a there, let Tiger think it over again, this could be difficult…
In the meantime, Tiger would like to finish up by expressing his full support for a TRX – PR1MA merger. It would be nothing less than a strong signal that the government is committed towards a more democratic model of real estate development and against duplication of government agency functions.
Tiger is certain our benevolent late prime minister Abdul Razak Hussein would be glad to see his name lent to a socio-economically responsible housing project instead of an ill-considered and unnecessary white show elephant.
GRRRRR!
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