Malaysia's 1MDB will sell its controlling stake in a high-profile property project to aMalaysian-Chinese group for $1.7 billion, wrapping up majorasset sales for a state fund whose troubles have roiled domesticpolitics.
Prime Minister Najib Razak, who chairs 1MDB's advisoryboard, has faced calls to resign amid international probes andpublic outrage over allegations of graft and financialmismanagement.
The fund had racked up more than $11 billion in debt - aburden that had weighed on the currency - before beginning arestructuring programme this year. Najib said in a New Year'smessage on Thursday that this asset sale combined with otherdeals would see its debt cut by about 40.4 billion ringgit ($9.4billion).
"It is therefore clear that 1MDB's major challenges are nowbehind it," he said.
1MDB will sell its 60 percent stake in Bandar Malaysia - amajor development project in Kuala Lumpur that will include apublic transport hub - to Malaysian tycoon Lim Kang Hoo'sIskandar Waterfront Holdings and its partner, state-run ChinaRailway Engineering Corp (CREC).
The Chinese firm is now likely to be in pole position forwork on a high-speed rail link from Kuala Lumpur to Singaporethat terminates in Bandar Malaysia. Japanese and European firmsare also competing for that project, estimated by local media tobe worth around $10 billion.
"We are just waiting for the government to call the tender,"said Cai Ze Min, managing director of CREC's Malaysia unit tolda news conference.
The deal represents the second major asset purchase from 1MDB involving Chinese state-run companies. China GeneralNuclear Power bought 1MDB's energy assets for $2.3 billion lastmonth.
The purchases are expected to boost Beijing's chances ofsecuring contracts to build other major projects in the countryas China seeks to extend its influence in SoutheastAsia.
Rafizi Ramli, a Malaysian opposition lawmaker, said theasset sales may complicate Malaysia's position in the region amid tensions over China's territorial claims in the South ChinaSea.
"How does this tie into the nation's defence strategy?"Rafizi said. "We have a prime minister who is indebted to theChinese government."
1MDB stressed, however, that the presence of lead investorIskandar Waterfront would mean the Bandar project would be 76percent owned by Malaysians.
Iskandar Waterfront will hold 60 percent of the venturebuying the 1MDB stake, while China Railway Engineering will holdthe rest, 1MDB said, adding that the sale should be completed bythe end of June.
Iskandar Waterfront is 60 percent controlled by a Lim familyinvestment vehicle with the rest owned by the Johor stateinvestment arm. Shares in unit Iskandar Waterfront City Bhd, , a property developer, jumped 4.5 percent.
The stakes have been high for Najib to resolve the 1MDBscandal after the Wall Street Journal reported in July thatinvestigators looking into the fund had found nearly $700million was deposited into Najib's private bank account. Reutershas not verified the report.
Najib has denied taking any money for personal gain.