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Malaysia’s 1MDB may have overvalued property assets: Report

Manan Vatsyayana | AFP | Getty Images

The $1.7 billion valuation Malaysia's troubled state investment fund put on a deal to sell property assets may be too high, the Financial Times has reported.

The agreement by debt-laden 1Malaysia Development Berhad to sell 60 percent of the Bandar Malaysia property development project to a Chinese-led consortium was hailed by Prime Minister Najib Razak as a sign that 1MDB's "major challenges are now behind it," when he announced the deal on December 31.

But the FT reported that China's state-run China Railway Engineering Corp., which is part of the buying consortium, had said in a filing to the Hong Kong Stock Exchange that the purchase price was equivalent to $1.2 billion, $500 million less than 1MDB announced.

In a statement to the FT on Tuesday, 1MDB said that adjustments may be made to the 7.4 billion Malaysian ringgit valuation, depending on whether some of the project's liabilities were passed on to the buyers.

Signage for 1Malaysia Development Bhd. (1MDB) is displayed at the site of the Tun Razak Exchange (TRX) project in Kuala Lumpur, Malaysia.
Malaysia PM Najib Razak used $700M donation to win 2013 elections: WSJ

On its website, 1MDB said the accusations of mis-valuation "appear to be last ditch attempts by members of the opposition to undermine the company's rationalization process." It said the figures China Railway Engineering provided to HKEx were the company's estimated share of the net equity value of the project, not the land sale valuation. The net equity value may be subject to further negotiations, 1MDB said.

It is the latest in a series of setbacks for 1MDB, which has been offloading assets to cut a debt load that ballooned to more than $11 billion by 2015. The fund has become what is likely Malaysia's worst-ever political scandal.

In July, the Wall Street Journal published a report alleging that nearly $700 million had flowed from Malaysia's state investment fund, 1MDB, to Najib's personal bank account. Najib has repeated denied wrong-doing.

Under pressure from the WSJ report, Najib said in August that the funds were a private donation from Middle Eastern country, which he declined to name. He has repeatedly denied wrong-doing.

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In December, the WSJ reported that the funds may have been channeled to politicians and projects to help his party win 2013 elections. Minutes from 1MDB meetings indicated the fund prioritized political spending even when its cash flows couldn't cover its debt payments, the WSJ reported.

In a statement on its website, 1MDB said that article was "recycling unproven allegations," and contained "no real news."

It added, "the WSJ appears happy to have become a noticeboard for conspiracy theories and smears propagated by the Malaysian opposition."

1MDB, which was launched in 2008 as one of Najib's pet projects, has been under scrutiny for months amid allegations of financial fraud. The fund is undergoing a "rationalization" program, launched in May, to reduce its debt of more than $11 billion by selling assets. In November, 1MDB sold its power plants for 9.83 billion ringgit ($2.3 billion) to a Chinese nuclear power supplier. It's reported to have paid around 12 billion ringgit for the assets.

Singapore and Switzerland have both suspended bank accounts tied to 1MDB and there have been media reports the U.S. Federal Bureau of Investigation (FBI) is investigating the fund as well. Investigations in Malaysia have been dogged by accusations they were biased toward the government.

The Financial Times article is available here