M-East Investors Set To Pump $1.5b Into IDR

Source : The Straits Times, Aug 27, 2007

Agreement on first large foreign deal in Johor region may be reached this week

KUALA LUMPUR - A GROUP of Middle Eastern investors, including Saudi Arabia's diversified Hariri Group, is set to plough an initial investment of over US$1 billion (S$1.53 billion) into the Iskandar Development Region (IDR) in Johor.

The deal would be the first large foreign investment into the IDR and could provide a boost for Prime Minister Abdullah Ahmad Badawi's pet economic project, analysts say.

Government officials say talks between the foreign investors and state investment arm Khazanah Nasional are in the final stages. An agreement could be reached as early as this week.

Officials say the other investors were groups from Abu Dhabi and Dubai which have established themselves as builders of new cities. The total amount of Middle East investments could be as much as US$6 billion in coming years, they say.

The IDR is a 2,217 sq km area in southern Johor that Malaysia has targeted as its next fast-growth area by attracting foreign investors, including those from Singapore.

Financial executives close to ongoing negotiations say the development will be a joint venture between Khazanah and the Middle Eastern groups.

The foreign investors will own a more than 50 per cent stake in the planned project, which will include a financial centre, a medical city and an entertainment enclave.

Khazanah's equity in the project will be in the form of the land that it will provide.

The size of the land and its valuation have yet to be ironed out, the executives say.

'This will mark a huge turning point for Iskandar because this is the economic component for the infrastructure that will be pumped into the project,' said Mr Manu Bhaskaran, regional director of the Washington-based Centennial Group, a strategic advisory firm.

The IDR is the cornerstone of Datuk Seri Abdullah's national economic agenda and represents a major shift away from the infrastructure and heavy industries strategy pursued by his predecessor Tun Dr Mahathir Mohamad.

A key feature of PM Abdullah's economic plan is the creation of so-called economic clusters to spread growth throughout Malaysia.

The IDR is also meant to be a template for developing two other growth centres covering the east coast states, and the north-west states of Peninsular Malaysia.

And unlike past undertakings, such as the Johor's Tanjung Pelepas Port which was built to claw away business from Singapore, government planners say the IDR is aimed at leveraging on Singapore's economy.

The planned investments underscores the growing trend among Middle Eastern investors to look for new destinations to plough their excess oil incomes outside traditional centres such as the United States.

Financial executives involved in the IDR say the project is also drawing interest from Middle Eastern investors because of the competitive nature of companies from that part of the world.

They say the interest from Abu Dhabi and Dubai investors is partly because Singapore has been successful in attracting investments from Qatar, particularly the Al-Thani family.

Analysts also say that Singapore's economic boom which has led to a rise in the cost of doing business in the island state could give the Iskandar region a boost.

'Iskandar could become the natural outlet for businesses in Singapore,' said Centennial's Mr Manu. 'But Malaysia must ensure there is a seamless access between Iskandar and Singapore. That will be the main challenge.'