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|The proposed construction of the RM26 billion Kuala Lumpur International Financial District (KLIFD), near the Kampung Pandan area, has sparked off tremendous interest among financial, construction and investment circles. |
The development of the 34.4 hectare piece of land, to be led by 1Malaysia Development Bhd, is expected to start from the middle of next year.
In a question-and-answer session with BERNAMA, Shahrol Halmi, the Chief Executive Officer of 1MDB, speaks about the choice of 1MDB''s partner and the project''s impact on the Greater KL initiative, which is part of the government''s Economic Transformation Programme (ETP).
Q1. The KLIFD is generating a lot of interest. Just how excited are you?
I am very excited. I see the same level of enthusiasm among my colleagues, bankers, partners, investors and media. It is great to see an air of excitement among the Ministers and high-ranking officials in the public and private sector responsible for the economic growth of the country.
In my mind, this reaffirms my belief that it is not impossible for competitors to co-locate to complement and strengthen one another as well as to further enhance their business value. KLIFD is a strategic development for a positive convergence of interest and competition to serve a single objective, which is making Kuala Lumpur an important destination for their businesses.
Q2. Now that you have found a strategic partner in Abu Dhabi’s Mubadala Development Company, there persists a nagging question: what do you see in Mubadala? Is there something they have which our local developers do not?
I believe Malaysia is blessed with talented master builders and developers, with many big players successfully making inroads around the globe. They are proven at doing what they do best, building and construction in property development. They have become our global champions in their field of expertise.
The vision for KLIFD is the pursuit for Kuala Lumpur to be a global city. It is a transformation to change how the world’s business community will see and value KL more. It’s an evolution that seeks to change the way we do things, businesses and lifestyle. That’s what I think Greater KL is about.
And this requires a holistic approach encompassing not just master planning but securing the international linkages to support KLIFD. Mubadala brings with it very strong global partnerships and linkages with international blue chip institutions across several sectors, including services, banking and finance amongst others. We want a KLIFD alive with activities.
This is what we want KLIFD to do. To unlock the strategic value of the land, and develop world class buildings anchored by international blue chip institutions that will develop synergies and capabilities for Malaysian firms.
Q3. What about the local players. Where do they stand?
Local players will play a critical role in the development. There will be plenty of opportunities for the local players in every sector of development and construction as we seek to leverage the strengths of our local companies as well as international investors -- KLIFD will be inclusive. This is a very large pie worth more than RM20 billion, to succeed we need to make sure everyone contributes. Opportunities will be made available to other foreign, local and strategic investors to participate as co-investors or co-developers and contractors at the individual plot or parcel level.
Q4. What about your team? You placed a recruitment ad recently. How was the response?
One word: Fantastic. We attracted more than 1,000 applicants in just a few days. On the first day, we received some 200 resumes. And the response is very telling, that we have a workforce that is very Internet-savvy. Almost 100 per cent of applications were received through email. That we do have a high number of Malaysians willing to return to Malaysia if they can find work suitable to their needs. That Malaysia is not short of talent. There is plenty of talent out there, judging from the initial read of the CVs submitted.
Q5. What is the single most important factor to ensure the success of a project of this scale?
Teamwork. We are especially appreciative of the tireless efforts put in by our colleagues in the civil service in working through the preliminary processes across multiple agencies. Everyone has been working as a team to facilitate the economic transformation of Malaysia. They include Dewan Bandaraya Kuala Lumpur, the Federal Territory Land and Mines Department, the Ministry of Finance and the Attorney-General’s Chambers. Everyone has demonstrated exemplary levels of professionalism. We will continue to strengthen the cohesiveness of this team as we move forward.
Q6. What about funding and investors? Aren’t they important too?
Definitely. Funding and investments are about confidence. There must be confidence before banks and investors are willing to take a stake. I think we have a concept in KLIFD that is attractive in many ways. So, we took our concept to the Government, the financiers and the investors. Their positive response underscores their confidence in KLIFD.
1MDB issued a RM5 billion 30-year Islamic Medium Term Notes last year. There is a view that 1MDB is taking in too much loan too fast. Some say this is not sustainable.
Given the scale of the strategic projects that we are undertaking, we need a large reservoir of funds to swiftly undertake projects that have been fully evaluated. However, I must note that we are very prudent in managing the funds earmarked for investments. The drawdown from our funding will be done in stages, in line with the projects' financing requirements. Each drawdown will be matched with the cash flow from the respective projects to ensure serviceability and eventual settlement of the loan.
Q7. It is fascinating to see a young company like 1MDB posting a net profit of RM425 million. How did 1MDB achieve this?
The profit arose from the disposal of our investments in our JV company with PetroSaudi. In addition, a portion is also attributable to the effective management of treasury function funds in 1MDB.
It is our strategy to invest whilst seeking the best returns for our investment. There is a continuous need to be disciplined to generate returns when it comes to managing funds meant for future strategic investments.
Q8. Will you make the account public?
Firstly, 1MDB’s accounts have been fully audited and signed by KPMG, and closed as of 31 March 2010. Secondly, Deloitte & Touche was involved in the valuation and analysis of 1MDB’s portfolio, while Ernst & Young provided tax advice for 1MDB. All three international professional firms have clear separation of roles to prevent any potential conflicts. In addition, like any Malaysian company, 1MDB will lodge its annual return with the Companies Commission of Malaysia (CCM). A copy of its accounts can then be obtained by the public through the CCM once it has been filed.
Q9. Can you share about PetroSaudi and talk about your partnership with them?
We respect our strategic partners for their views and it is best for PetroSaudi to explain directly of their goals for Malaysia. The Company also has a website, www.petrosaudi.com, which provides information on the company.
We have a solid partnership with PetroSaudi and leverage on PetroSaudi’s strong international network in the energy industry worldwide region to attract investment into Malaysia. We prefer a partnership of inclusiveness that allows our partners to team up with others so long as they serve the larger interest of promoting economic growth.
After our divestments of certain investments with PetroSaudi which have yielded good returns for 1MDB, we have taken a sound investment strategy to continue to maintain a significant investment in PetroSaudi through a hybrid Murabaha Islamic partnership. This ensures a good partnership for 1MDB as we are able to receive a study stream of cash flows in the form of an annual fixed profit share which is positive in ensuring that our financial obligations are met while also having the option and ability to capture equity type returns.
Q10. How much government funds have been injected into 1MDB? Is it true that 1MDB has raised RM15 billion in loans?
1MDB has never received any cash injection from the government beyond its initial RM1,000,002 in paid-up capital. There is absolutely no truth that the Government has injected the purported RM10 billion to RM15 billion in cash into 1MDB and neither have we raised RM15 billion in loans as indicated by some quarters. As an example, 1MDB’s RM100 million commitment for its CSR programme is solely derived from our earnings.
Q11. Given that 1MDB was a newly-formed company, was it a challenging fund raising experience for the initial RM5 billion IMTN raised from the Islamic bond market?
The world was hit by the severe global economic crises recently and although Malaysia had taken good measures to soften our landing, we were affected to a certain extent considering global trade and inter-connectivity. It was a time when global market confidence was imploding and the credit markets tight as a result of the global financial meltdown. It hit everyone and challenged the cost of our funding programme.
After receiving professional advice and recommendations from both top tier international and local investment bankers, it was determined that our IMTNs should be structured effectively similar to a hybrid discounted bond resulting in a discount in the proceeds raised from the IMTNs (similar to a zero coupon bond) which would enable us to lower the subsequent semi-annual profit payments.
It is important to note that we managed to overcome the credit environment challenges and successfully raised our IMTNs. It was the first ever 30-year IMTN ever issued by a Malaysian entity which underscores the belief of the international investor community in Malaysia’s proposition as a long-term investment destination. The IMTN has won international recognition for innovation.
Q12. Let’s talk about the RM100 million 1MDB is committing to CSR activities. How much has actually been spent and for what?
We have disbursed RM22 million to date for a wide range of CSR programmes. We partnered with JAKIM to give scholarships to students who are pursuing medicine in Egypt. We also worked with Dong Jiao Zong to give out academic awards to UEC students and with Sri Murugan Centre to help students that excelled in their SPM and STPM exams. And we do more than just giving out academic grants.
In Sarawak, for example, we built rumah araus or halfway houses, so that pre-schoolers who are not yet eligible for hostels can stay there during the school days with their guardians.
In every CSR project, we follow the same guiding principles: that the programmes collectively should be inclusive, without regards to race, religion, political affiliation or geographical location. They should be for the deserving, contributing to the socio-economic development of Malaysia.
Q13. Why the emphasis on education when there are so many others focusing on education?
I think the importance of human capacity and education cannot be overstated. We believe education is an inclusive tool to secure a brighter future for all. When we improve access to education, we help bridge gaps of different groups, we help develop talents and we give them the potential to create better lives for themselves. Everyone able to help must help. It is not about who can do better. That’s not our intention.
Q14. Does this mean you will not be doing more of other type of CSR?
This doesn’t mean we limit ourselves to just education projects. We are committed to human capacity enhancing programmes. In the months ahead, we will also be working on other projects involving providing healthcare services to rural communities, and unity-themed programmes with youths, in line with the spirit of 1Malaysia. In addition, we will also be doing renovation projects for dilapidated homes in several states.