Malaysia seeks to complete US$10b project rocked by scandal

Kuala Lumpur

WITH its reflective blue glass facade and 12-storey clear glass crown, the Exchange 106 tower in Kuala Lumpur is meant to make a commanding statement about this fast-growing Malaysian capital's readiness to be regarded among the world's great cities.

The four million sq ft office and retail skyscraper, expected to be completed before the end of the year, is the centrepiece of the US$10 billion Tun Razak Exchange - an office, retail and residential development sponsored by former prime minister Najib Razak to turn 70 acres of the central business district into a new global finance centre.

Among the world's 15 tallest buildings, the tower stands 133 feet higher than the Petronas Twin Towers, which have been landmarks on the Kuala Lumpur skyline since they were opened in 1998.

But the building's significance has been overshadowed by charges of government corruption, embezzlement and money laundering.

On May 9, Malaysians elected lawmakers to Parliament from the Pakatan Harapan opposition coalition.

Their leader, Mahathir Mohamad, a reform candidate and former prime minister, replaced Najib and his ruling Barisan Nasional party.

Dr Mahathir's victory was built on persistent and penetrating criticism of corruption in a nine-year-old national development fund, 1Malaysia Development Berhad (1MDB), that was initiated and overseen by Najib.

1MDB started the Tun Razak Exchange and, until three years ago, was its principal developer.

But several investigations, including one by the FBI, have calculated that US$4.5 billion is missing from the development fund, and some US$731 million was diverted to Najib's personal accounts.

On July 3, Najib was arrested and charged with theft and money laundering. He pleaded not guilty and was released on bail.

In June, Finance Minister Lim Guan Eng, told reporters that US$750 million was "misappropriated" by 1MDB from the Tun Razak Exchange, known as TRX.

The Mahathir administration, he said, had nevertheless decided to invest almost US$700 million more to complete the project.

"The Malaysian Cabinet has decided to support the TRX project to recoup all misappropriated funds, repay all borrowings, recover all funding investments and opportunity costs as well as potentially achieve a small surplus return," said Mr Lim.

The Exchange 106 tower and the new financial centre were particular favourites of Najib. TRX is named for his father, Abdul Razak Hussein, Malaysia's second prime minister.

Najib's allegiance to the project helped persuade the Mulia Group, a big developer based in Jakarta, to spend US$166 million for the 3.4 acres in the exchange, enough room to build the tower.

Mulia owns 49 per cent of the tower; the Malaysian Ministry of Finance owns the other 51 per cent.

TRX was included in a US$100 billion infrastructure construction campaign started by Najib in 2009 to elevate Malaysia from a middle-income country to what he called a "Top 20 nation".

Those projects included new rail lines and stations, mixed-use real estate developments, ports, highways, pipelines and energy plants.

Since the May 9 general election, Dr Mahathir has cancelled or suspended most of the big projects, including two pipelines, a Kuala Lumpur metro line and two national train lines.

But with the Mahathir administration's new investment in the TRX, the Exchange 106 tower will be finished on schedule before the end of the year, and the entire 70 acre development appears on a clear path to completion by the early 2020s.

Until the corruption scandal broke into public view in 2015 and its assets and responsibilities were restructured, 1MDB was responsible for land sales and development in the TRX.

The Ministry of Finance assumed 1MDB's share of the project last year.

Dr Mahathir has hired PricewaterhouseCoopers to audit 1MDB accounts. Malaysian auditors previously reported the fund's losses at US$14 billion, according to government reports.

Those losses and other government obligations from the concrete and steel infrastructure projects started by Najib contributed to more than doubling the national debt - to US$250 billion - since he was elected in 2009.

Since 2012, according to Malaysian officials, 1MDB spent about US$925 million to guarantee loans, provide advances and purchase land at the TRX. 1MDB recouped a portion of its expenses from selling land parcels within the project's boundary.

Both the tower and the larger exchange are hives of active construction.

More than 2,000 workers, labouring around the clock, swarm the site. Other projects under construction include a US$2.8 billion, 17 acre Lifestyle Quarter, which includes a hotel, six apartment towers, a two million sq ft shopping mall and a landscaped park on the roof of the mall.

Lendlease, a construction and project management company based in Sydney, is developing the quarter.

Several more office towers are under construction, and the Malaysia division of Prudential Insurance has leased space in one of them.

The announcement that the government would continue to invest in the TRX relieved anxiety about finishing one of Asia's largest public-private projects.

Christine Yeap, the Mulia Group's senior manager for marketing and leasing, said that the company was working with the Mahathir administration to avoid any market disruption. The Exchange 106 tower is about 60 per cent leased.

"Mulia Group is optimistic that the government will guide this development on the best way forward," she told reporters in Kuala Lumpur.

Mulia markets the Exchange 106 tower as the "world's most luxurious" office building.

The tower includes 100,000 sq ft of retail space on two lower floors, a lobby on the 57th floor for sightseeing and 92 floors of office space.

Lobby areas are trimmed in English burl wood and marble. The onyx bathrooms are designed with US$1,300 custom toilets from Japan that operate with digital controls.

The floor plates stretch 28,000 to 34,000 sq ft, and are unobstructed by support columns. And views of the city and metropolitan region are magnificent.

"When we agreed to build this project, our chairman said it won't be just another building," Ms Yeap said. "It's going to be the best building in the world. When it opens, people will see that we reached that goal."

The big tower fills a dire shortage in top-tier office space in Kuala Lumpur, said Michael Yam, a prominent developer in Kuala Lumpur.

"There are only one or two buildings that are truly Class A," he said. "These new buildings at the exchange will have big demand."

The Exchange 106 Tower and the other Tun Razak projects under construction follow a master plan that stresses energy efficiency, environmental sensitivity and access.

The development will be served by a new underground station on the US$5 billion, 50 km-long MRT1 driverless subway line that opened last year.

The landscaped central park is a green roof. Veolia Water Technologies, a French contractor, is building a 30,000 sq ft plant to treat 3.5 million gallons of wastewater daily for use in toilets, cooling and landscaping.

The plant is capable of cutting water demand in half by treating and recycling at least 80 per cent of all the fresh water used in the exchange.

"The development still consumes potable water from the city," said Sandrine Guendoul, a Veolia spokeswoman. "The large degree of internal reuse reduces the load on the city network considerably." NYTIMES