Asian Rivals Become Partners

SINGAPORE—A series of major real-estate and infrastructure investments announced this week between Singapore and Malaysia offer the latest evidence of warming ties between the countries as they try to bury longstanding rivalries to compete more effectively with China.

In one of the deals, whose details were announced Monday, Singapore’s Temasek Holdings Pte. Ltd. and Malaysia’s Khazanah Nasional Bhd. said they will jointly invest in two integrated property developments in Singapore estimated to be worth about 11 billion Singapore dollars (US$8.86 billion). The plans by the two state investment firms include major office, hotel, residential and retail developments, including four parcels in Singapore’s high-profile Marina South district downtown, near Las Vegas Sands Corp.’s giant Marina Bay Sands casino and entertainment center.

The package, elements of which were disclosed earlier, is thought to be the largest co-investment ever by the neighboring Southeast Asian nations.

The Singapore and Malaysia governments also said Monday they plan to open a rapid-transit service between Singapore and the neighboring city of Johor Bahru in Malaysia’s south by 2018. That project, whose estimated cost wasn’t disclosed, is expected to significantly improve transportation links between the two investment centers, which now are connected by two road bridges and a passenger railway line that links into Malaysia’s national railway network.

Although Singapore and Malaysia are close in geographic terms, they have often viewed each other with suspicion and have squabbled repeatedly over issues such as supplies of water and sand, the latter of which is needed desperately in Singapore for land reclamation projects. Many of the animosities go back to the 1960s, when Singapore was briefly part of Malaysia before splitting apart to form a separate country. Since then, Singapore’s economy has outperformed Malaysia’s by many measures, intensifying the rivalry.

More recently, though, leaders of the two countries have sought to play down disagreements in the hopes of encouraging new investments aimed at mimicking the success of places such as Hong Kong and Shenzhen in southern China. Leaders in both the Southeast Asian countries are worried about losing out on investments that have flowed to China in recent years to take advantage of lower costs there.

Despite its success as a major financial center and export hub, Singapore is running out of land and labor, and many companies there are looking for ways to expand nearby rather than relocating operations to more distant countries where labor is cheaper. Malaysia, meanwhile, has available land and some lower-cost workers and is looking for more ways to leverage its proximity to Singapore to boost growth.

"There seems to be a commitment on both sides to look at things pragmatically and put the past behind them," says Manu Bhaskaran, chief executive of Centennial Asia Advisors, an analysis firm in Singapore.

Central to that vision is the Iskandar special economic corridor in Johor, Malaysia, a state-backed development zone that encompasses an area of about three times the size of Singapore and twice the size of Hong Kong. The project was greeted with some skepticism when it was launched in 2006 with plans for more than $100 billion in public- and private-sector investments in shipping, manufacturing, tourism and other industries over 20 years.

But it has gained momentum more recently, with investors eyeing the area as a possible spillover site for businesses that can’t afford to run all of their operations in Singapore, much as some companies in New York have moved certain functions to areas in New Jersey or Long Island. As part of the deals announced on Monday, Temasek and Khazanah said they will also establish a 50-50 joint venture called Pulau Indah Ventures to develop two sites in the Iskandar zone with a view to developing more in the future.

Other new investments in Iskandar and Johor include a 400-bed hospital, according to Iskandar and local media reports, and a local branch of the U.K.’s Newcastle University. A Legoland theme park is expected to open next year.

"All this points to a business model that can work," says Chris Eng, head of research at OSK, a Malaysian investment bank, who says he has turned positive on the Iskandar development this year.

Key parts of the proposed property developments announced Monday stem from a land swap arrangement announced last year between the two governments in which land parcels in Singapore owned by Malaysia’s state-owned railway are to be handed over to Singapore. In exchange, the Singapore government will transfer land parcels in Marina South and another part of central Singapore known as Ophir-Rochor into the joint-venture vehicle.

The Marina South project allows for a gross floor area of 341,000 square meters (3.67 million square feet) and will need to include at least 60% office or retail space because of zoning requirements. The Ophir-Rochor site near Singapore’s Bugis area will be made up of at least 40% office space and 15% space for hotel and hotel-related uses and is expected to become a 24-hour mixed-use zone.

The investments in the development of the Singapore properties will be made by M+S Pte. Ltd.—a joint venture held 60-40 by Khazanah and Temasek, respectively—which will be established June 30.

M+S has appointed a unit of Khazanah-linked real-estate firm UEM Land and a unit of Temasek’s wholly owned Mapletree Investment to develop and market the Marina South district. M+S has also appointed a UEM unit and a wholly owned subsidiary of Temasek-linked CapitaLand Ltd. for the Ophir-Rochor site.

CapitaLand  in a separate statement said it envisioned a mixed-use development at Ophir-Rochor with a floor area of around 160,020 square meters. The development time frame for the projects wasn’t disclosed.

Source: The Wall Street Journal, 29 June 2011