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Mitsui in big on Malaysia project to build high-tech metropolis

In the Medini district of the Iskandar project, construction companies are building a high-tech metropolis. Mitsui is widening the scope of its infrastructure business in Asia through such projects.

KUALA LUMPUR -- Japanese trading giant Mitsui & Co. is capitalizing on its business partnerships in Malaysia to expand its role in the country's government-backed grand project to build a new multi-functional city.

Iskandar Malaysia is a gargantuan urban development project to build a thriving, high-tech metropolis that can attract money and people from all over the world on a tract of land three times larger than neighboring Singapore.

Located about 30 minutes from Singapore, the development site is shaping up as the bustling scene of a new city emerging amid a raft of ongoing construction work. High-rise condominiums, a university and a movie studio are among the facilities that have already opened in the area. But the burgeoning new city is still dotted with many vacant lots and patches of forests.

For Mitsui, the project offers a great opportunity to widen the scope of its overseas infrastructure business and enhance its competitive position in Asia.

Building a new city

Hulking cranes are everywhere, working on new buildings.

The development project, which started in 2007, is expected to absorb 2 trillion yen ($18.7 billion) more in investment over the next 20 years.

Mitsui's involvement in the project began in 2013, when it joined the ranks of companies developing the Medini district, a southwestern part of Iskandar where a smart city is being built.

Mitsui has already developed some condos, leisure facilities including a Legoland, a hospital and two office buildings in the district. In the works are plans to build two skyscrapers by 2018 and establish local systems for management of energy consumption in the entire district, payments with electric money and electric car sharing.

The company has already introduced cutting-edge Japanese technologies to support the project, including Azbil's integrated building management system, Panasonic's solar power generation technology and Fujikura's wireless local area network.

"This is radically different from conventional real estate development projects," said Mitsui's Tetsuo Okamura, who serves as executive vice president of Medini Iskandar Malaysia, the master developer of the Medini smart city.

Mitsui's overseas real estate development operations have been mostly limited to the construction of facilities and sales of developed land.

But the company has spent 15 billion yen to acquire a 20% stake in MIM, which is majority owned by a company affiliated with the Malaysian government. As part of the main developer group, Mitsui is involved in the formulation of the master development plan for the area, actual construction work and outsourcing.

Simple building projects offer short-term investment returns, but Mitsui has opted to go after big, long-term profits by becoming part of developer group.

Gaining a foothold

It was not easy even for a global powerhouse with much experience and expertise in a wide range of business areas to get a part in the mammoth, government-backed project in the emerging country.

Mitsui's Tetsuo Okamura, right, is working with companies affiliated with the Malaysian government in the development of a smart city called Iskandar Malaysia.

When Okamura first contacted key people to negotiate Mitsui's investment and involvement in MIM, they turned a deaf ear to him, basically saying there was no room for a Japanese company in the project. But Okamura was tenacious in his efforts for Mitsui to become part of the project. 

First, he made use of Mitsui's contacts within the Malaysian government to gain a foothold.

In 2011, Mitsui invested some 90 billion yen in IHH Healthcare, a major Malaysian hospital chain operator. The largest shareholder of the health care service provider is the Malaysian government's sovereign fund Khazanah Nasional, which is also deeply involved in Iskandar.

Mitsui collected information about Iskandar while supporting IHH's operations to build ties with the government.

Mitsui also turned to the Singaporean government-affiliated real estate developer Ascendas-Singbridge for help with its bid to acquire a stake in MIM.

Ascendas, which is in a strong position to capitalize on cooperative relations among Southeast Asian nations, is involved in some 30 urban development projects in 10 Asian countries, including Iskandar.

Mitsui's success in building good working relationship with Ascendas can be seen in Fusionopolis Phase 5, an office area in a business park bristling with skyscrapers and research labs located in southwestern Singapore. A special-purpose company jointly set up in 2012 by Ascendas and Mitsui is in charge of developing the office area, and 30 billion yen have been allotted for the project.

Mitsui was expected to help attract Japanese investment in the area, which is designed to become a hub for technology companies. The company has won the trust of Ascendas by persuading such Japanese technology heavy hitters as Canon and Hitachi to expand their operations into the area.

In 2015, Mitsui embarked on a new project. The trading company acquired a 49% stake in Ascendas' joint venture with UEM Sunrise, another company affiliated with the Malaysian government, to develop an industrial park named Nusajaya Tech Park within Iskandar. Officials hope that the park, located on 210 hectares of land, will entice 200 companies to move to new facilities. 

But as Mitsui's involvement in Iskandar expands and deepens, the risks for the company also grow. One worrying factor is the weakening of the Malaysian economy, which is causing investment to stagnate in some parts of Iskandar.

Despite its large contribution, Mitsui remains cautious about the outlook of the Iskandar project. "We will maintain our long-term commitment [to the project] while trying to avoid risks," said Okamura.

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