December 31, 2015 / 4:10 AM / 3 years ago

UPDATE 2-Malaysia's 1MDB in $1.7 bln asset sale, PM says debt mostly gone

* Deal is last of major 1MDB asset sales

* Iskandar Waterfront and China Railway Engineering the buyers

* PM Najib under pressure to resolve 1MDB scandal (Recasts, adds comments from Najib and opposition MP)

By Rozanna Latiff

KUALA LUMPUR, Dec 31 (Reuters) - Malaysia’s 1MDB will sell its controlling stake in a high-profile property project to a Malaysian-Chinese group for $1.7 billion, wrapping up major asset sales for a state fund whose troubles have roiled domestic politics.

Prime Minister Najib Razak, who chairs 1MDB’s advisory board, has faced calls to resign amid international probes and public outrage over allegations of graft and financial mismanagement.

The fund had racked up more than $11 billion in debt - a burden that had weighed on the currency - before beginning a restructuring programme this year. Najib said in a New Year’s message on Thursday that this asset sale combined with other deals would see its debt cut by about 40.4 billion ringgit ($9.4 billion).

“It is therefore clear that 1MDB’s major challenges are now behind it,” he said.

1MDB will sell its 60 percent stake in Bandar Malaysia - a major development project in Kuala Lumpur that will include a public transport hub - to Malaysian tycoon Lim Kang Hoo’s Iskandar Waterfront Holdings and its partner, state-run China Railway Engineering Corp (CREC).

The Chinese firm is now likely to be in pole position for work on a high-speed rail link from Kuala Lumpur to Singapore that terminates in Bandar Malaysia. Japanese and European firms are also competing for that project, estimated by local media to be 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 told a news conference.

The deal represents the second major asset purchase from 1MDB involving Chinese state-run companies. China General Nuclear Power bought 1MDB’s energy assets for $2.3 billion last month.

The purchases are expected to boost Beijing’s chances of securing contracts to build other major projects in the country as China seeks to extend its influence in Southeast Asia.

Rafizi Ramli, a Malaysian opposition lawmaker, said the asset sales may complicate Malaysia’s position in the region amid tensions over China’s territorial claims in the South China Sea.

“How does this tie into the nation’s defence strategy?” Rafizi said. “We have a prime minister who is indebted to the Chinese government.”

1MDB stressed, however, that the presence of lead investor Iskandar Waterfront would mean the Bandar project would be 76 percent owned by Malaysians.

Iskandar Waterfront will hold 60 percent of the venture buying the 1MDB stake, while China Railway Engineering will hold the rest, 1MDB said, adding that the sale should be completed by the end of June.

Iskandar Waterfront is 60 percent controlled by a Lim family investment vehicle with the rest owned by the Johor state investment 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 1MDB scandal after the Wall Street Journal reported in July that investigators looking into the fund had found nearly $700 million was deposited into Najib’s private bank account. Reuters has not verified the report.

Najib has denied taking any money for personal gain. ($1 = 4.2860 ringgit)

Additional reporting by Emily Chow and Joseph Sipalan; Writing by Simon Webb; Editing by Edwina Gibbs

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