Crucial Facts You Should Know About The Controversial 1MDB-Tabung Haji Land Deal

A purported leak of proposal papers involving a land deal between 1MDB and Tabung Haji is raising more questions than answers.

Cover image via The Malaysian Times

MPs urge Tabung Haji to keep TRX land to gain greater profits

Image via Penaminang

Several Barisan Nasional MPs have urged Lembaga Tabung Haji to keep the parcel of land it bought from 1Malaysia Development Bhd (1MDB) as it could appreciate in value.

“From a businessman’s point of view, perhaps it is better not to sell the land first. What’s wrong with keeping the land if it could appreciate in value?" said Liang Teck Meng (BN-Simpang Renggam)

Datuk Nawawi Ahmad (BN-Langkawi) said the proposed sale of the land was made following political perception.

"I urge the minister not to sell the land but keep it as it will bring bigger profit for Tabung Haji," he said.

In welcoming the support, Jamil Khir said he would urge TH board members to review the proposed sale of TRX land.

"I received strong support for Tabung Haji not to sell the TRX land and take note of it," he said.

12 May: No reason to withdraw savings from Tabung Haji as deposits are guaranteed by the government, says PM Najib

“I would like to say on behalf of the government, depositors do not have to worry because all deposits in Tabung Haji are guaranteed by the government,” Najib told a press conference after chairing the Umno Supreme Council meeting at the party’s headquarters.

“So the issue doesn’t arise if any quarters want to instigate them into withdrawing their deposits from Tabung Haji.”

Meanwhile, the police are also investigating allegations of mismanagement and power abuse in the 1MDB-Tabung Haji land deal

“Regarding the accusations of mismanagement and power abuse by the leadership of TH regarding the purchase of land at the Tun Razak Exchange (TRX), the investigations have already been initiated. Today (yesterday), my officers went to TH to see the related documents,” said IGP Khalid Abu Bakar.

Khalid clarified that the police were not merely probing the land deal under the Official Secrets Act (OSA) over leaked information, adding that the case was initially classified under the law that protects government secrets as the Muslim pilgrimage fund is a government-linked firm.

“The investigation involves the leaking of official government information in TH, that initially was made according to the Official Secrets Act (OSA) because it is a government-linked company (GLC). I want to explain, the investigation now does not go towards OSA. When we get more facts through investigation, then only will we identify the offence that has happened and what laws we should use,” he said.

Last week, when the controversy broke out, UMNO Youth member Saifuddin Abdullah had pointed out that the deal could have been tainted by a conflict of interest, as three key figures in Tabung Haji are also directly involved with the debt-ridden 1MDB

11 May: Tabung Haji will make millions overnight from selling 1MDB land, says Najib

Image via MyNewsHub

Prime Minister Datuk Seri Najib Razak believes people have got the wrong impression over Lembaga Tabung Haji’s purchase of a 0.64ha piece of land in the Tun Razak Exchange (TRX) from 1Malaysia Development Berhad (1MDB) recently.

“It is not a bailout. Unfortunately the project, which is a very good commercial deal for Tabung Haji has been twisted around. People have got the wrong impression on the grounds that Tabung Haji depositors’ money has been used to rescue 1MDB,” said the Prime Minister.

"We do not want to continue with this controversy because it will take away a lot of our energy in terms of concentrating on some of the big programmes that we have in mind," he told reporters after launching the Kota Belud People's Housing Project (PPR).

The Prime Minister said the fact that there were several offers to buy the land showed that the purchase was not a bailout.

“Tabung Haji has received offers for the land at a higher rate. By flipping to a private company, the board is going to make a few million overnight. So, it cannot be a bailout because no private company will buy over a project if it is a bailout,” he said.

On 9 May, Lembaga Tabung Haji announced that they will putting the TRX land they had acquired from 1MDB at the behest of the Prime Minister.

According to chairman Abdul Azeez Abdul Rahim, three firms had already made their offers and the funds board is expected to bring in at least RM5 million in profits when the deal is finalised.

"This morning, I received a call from the Prime Minister (Datuk Seri Najib Razak). I must stress that this was not a directive, but he advised us to sell the plot of land seeing that the issue had created too much defamatory rumours. “The board met this morning and we decided that in the best interest of the public and Tabung Haji depositors that we heed that advice," said Azeez.

"One potential buyer has offered RM188.5 million, the price Tabung Haji paid to purchase the land from 1Malaysia Development Bhd (1MDB), but with an additional profit of RM5 million," he told a press conference here today to explain the issues surrounding the land purchase.

However, Tabung Haji is still awaiting higher bids from the two other potential buyers.

However, it has been reported that that Kumpulan Wang Amanah Pencen (KWAP) is set to buy the land at a price that is more than 15% lower than what Tabung Haji had paid for to house its new headquarters

The heads of agreement for the purchase had been ironed out between KWAP and 1Malaysia Development Bhd (1MDB) that would see KWAP pay between RM1bil and RM1.2bil for a 40-storey building and land at the TRX in Kuala Lumpur.

According to sources, KWAP will be purchasing the land at about RM2,300 per sq ft. Tabung Haji paid 1MDB RM188.5mil, or RM2,774 per sq ft, for its 0.64 ha of land at the TRX.

8 May: On 5 May, a blog called "The Benchmark" released a set of documents detailing an alleged land acquisition deal involving Lembaga Tabung Haji and the 1Malaysia Development Board (1MDB)

Image via The Benchmark

While it is not strange for Tabung Haji to be acquiring land as part of its investment plans, the controversy arises from the fact that the pilgrims fund board is purchasing plots of land from the debt-ridden 1MDB

Lembaga Tabung Haji facilitates savings for its contributors' pilgrimage to Mecca through investment in Shariah-compliant vehicles.

Meanwhile, 1MDB has been in the spotlight for all the wrong reasons as of late. The strategic development company, which is wholly-owned by the Malaysian government, had accumulated debts totalling to RM42 billion in addition to Sarawak Report's expose on Penang-based financier Jho Low having allegedly siphoned US$700 million (RM2.5 billion) from a joint venture between 1MDB and Petrosaudi.

1MDB is currently involved several high-profile projects such as the Tun Razak Exchange, Tun Razak Exchange's sister project Bandar Malaysia and the acquisition of three Independent Power Producers.

The blog claimed that the pilgrims fund board had purchased two plots of land at the Tun Razak Exchange (TRX) for an unreasonably high price of RM772 million using depositors' money in an attempt to bail out the "scandal-ridden" 1MDB sovereign fund

Located in the heart of Kuala Lumpur, the Tun Razak Exchange (TRX) is a 70-acre development project helmed by 1MDB Real Estate Sdn. Bhd. which has been touted as an international financial hub featuring office spaces which will be complemented by world-class residential, retail and leisure spaces. Phase 1 is scheduled to be completed in 2017/2018.

Based on "insider" information, it was also alleged that the deal had been expedited and approved within two weeks, with Tabung Haji having paid for the first plot of land in full to 1MDB despite a high risk assessment

Image via The Benchmark

The post further revealed that Tabung Haji may be paying an average of "48 to 65 times more" for both plots of land as compared to the amount 1MDB had paid for the government-owned TRX land in 2011

Image via The Benchmark

According to the leaked documents, Tabung Haji was believed to have paid RM194 million (RM2,860 per square feet) in full for the first plot of land to develop a block of serviced apartments and is expected to pay RM578 million (RM3,900 per square feet) in cash for the second to house an office building called Signature Tower.

1MDB is said to have acquired a large section of government-owned land in TRX for a mere RM60 per square feet back in 2011.

Image via The Benchmark

You can read the entire blog post here.

Tabung Haji chairman Datuk Seri Abdul Azeez Abdul Rahim had initially denied the purchase when he was asked about it on Twitter

However, Deputy Group Managing Director and CEO Datuk Johan Abdullah later confirmed that a piece of land had been acquired at a discounted price of RM188.5 million instead of RM194 million as was claimed in the blog post

"The investment is a commercial decision which fits our risk appetite and has gone through all internal detailed due processes. The purchase of the property at RM188.5 million was at a discounted price based on the current market value and appraised by an independent professional valuer," he said.

He said the proposed residential building will be developed by TH Properties Sdn Bhd (TH’s subsidiary) and is expected to contribute positively to the group’s future earnings.

Johan also denied the purchase of the second plot of land known as Signature Tower (Phase 2), explaining that the offer did not match their risk-return requirements and that information from proposal papers do not reflect their final decision

Without naming any blogs, Johan said, "Leaked information through proposal papers can not be used as evidence of a final decision on the investment."

"The signature tower land deal did not go through as claimed. We were offered the land, but we did not take it considering our risk appetite," he told reporters.

In defence of the land purchase, Johan maintained that it was not a bailout for 1MDB. Rather, it was a sound investment that was made because they wanted "a piece of the action in the development”.

“This is not a bailout, we are not blindly pumping in money into a company,” he told a press conference here yesterday. “Our consideration is whether it’s a sound investment and how much are the potential returns, which must be competitive."

“As far as transparency and corporate governance are concerned, we have done all the due diligence needed. It’s not a call made by any individual. The investment met the risk reward profile of Tabung Haji,” said Johan. “No one person can make the call without the internal due process which includes our investment panel, our board and up to the ­ministerial level.

Johan said that as part of the condition for the purchase, 1MDB would undertake to build “state of the art” infrastructure.

“If the conditions are not fulfilled, we have the right to walk away from the deal,” he said.

Tabung Haji plans to build high-end residential property on the parcel of land that will be completed within three years. The board fund’s property arm, TH Property Sdn Bhd, will undertake the development of the property.

Tabung Haji expects a return of 27% from its investment in the parcel of land in the first three years, which works out to 9% per annum. The returns exceed the investment fund’s risk-return threshold of at least 6%.

Following that, Azeez apologised for the "miscommunication" from his denial tweet, saying that he is actually denying the blog post's claims that Tabung Haji had purchased two plots of land for RM722 million

Tabung Haji has since made a police report in regards to the leaked documents. Police will be investigating the case under the Official Secrets Act.

Calling it a 1MDB bailout, Tun Mahathir calls for Tabung Haji to terminate the land deal immediately. PERKASA chief Datuk Ibrahim Ali echoes the sentiment.

Tun M wrote in his blog today that the money of Tabung Haji contributors was being used to rescue 1MDB.

"Is this how Tabung Haji uses public money entrusted to it? Contributors hope for their money with Tabung Haji would be managed for their good but the money is being used to rescue 1MDB which has lost billions of ringgit," he wrote.

Datuk Ibrahim Ali said if it was not too late, TH should cancel its decision to buy the TRX land belonging to state-owned strategic development company, 1Malaysia Development Berhad (1MDB).

"If the deal is still in the initial stage and they (TH) had only paid a deposit and there's a way to withdraw, then do it.”

UMNO Youth chief Khairy Jamaluddin also released a statement demanding explanations from the Finance Ministry in explaining how much 1MDB had paid for the TRX land and what it will do with proceeds from the sale.

They also have some questions for Tabung Haji in regards to the land deal:

Is there a conflict of interest in the deal, in view of the fact that Tabung Haji CEO Ismee Ismail is also on the 1MDB board?

- Were the discounts on the purchase price given on the condition that the deal was transacted in cash? Has Tabung Haji ever bought property in cash?

- What was the basis used by the Tabung Haji investment panel to approve this acquisition?

- Is it true that the (panel's) risk report concluded that this investment was risky? and

- Was it true that other plots of land within the vicinity are cheaper than what Tabung Haji paid for?

Meanwhile, contributors and would-be pilgrims stormed Tabung Haji offices to withdraw their savings and to demand the chairman Datuk Seri Abdul Azeez's resignation

In short, being involved with 1MDB isn't exactly a very good idea right now: