Attempts to contain a financial scandal at Malaysia’s state development fund suffered a blow on Tuesday when it emerged that a major asset sale may be worth less than announced.

Heavily indebted 1Malaysia Development Berhad has agreed to sell a 60 per cent stake in the Bandar Malaysia property development project to a part Chinese-owned consortium.

The $1.7bn deal, announced by 1MDB on New Year’s Eve, was hailed by Malaysian prime minister Najib Razak as evidence that the fund’s “major challenges are now behind it”.

However, state-run China Railway Engineering Corp, which is acquiring the stake as part of a joint venture, said in a filing to the Hong Kong Stock Exchange that the acquisition cost was equivalent to $1.2bn, $500m short of the valuation announced by 1MDB.

1MDB said in a statement on Tuesday that “adjustments may be made to the 7.4bn [Malaysian ringgit] land sale valuation, depending on whether or not certain Bandar Malaysia-related liabilities can be passed to the consortium”. It said any adjustments would be made during the completion period between January and June 2016.

The revised valuation for the project intensifies questions about the profitability or otherwise of the multibillion dollar asset sales done by 1MDB last year to stave off a cash flow and debt crisis.

The fund has released only limited financial details of its disposals of power and property holdings that it says total more than $3bn. These were concluded less than 24 hours before the year-end deadline set by the prime minister for 1MDB to deal with its troubles.

The fund also faces questions over the fate of billions of dollars linked to its dealings in the Middle East and the Cayman Islands.

1MDB’s most recently published financial statements are now almost two years old, after it sought and won permission to delay filing its accounts for last year. By March 2014, the most recent figures available, the fund’s outstanding loans had ballooned to more than $11bn.

Mr Najib, who oversaw the fund’s creation in 2009, said on New Year’s Eve that the sale of the Bandar Malaysia stake would reduce 1MDB’s debt by Rm7.1bn. He said the fund had agreements in place to reduce its debt by Rm40.4bn, or the “overwhelming majority” of the total amount.

Mahathir Mohamad, the influential former Malaysian prime minister and once Mr Najib’s mentor, has called for his successor’s resignation over the affair.

Mr Mahathir accused his successor of undermining the legal system after Mr Najib removed an attorney-general overseeing inquiries into 1MDB. The government said the attorney-general had been replaced for health reasons.

1MDB’s problems have directly and indirectly spawned corruption claims and multiple international law enforcement investigations.

The Bandar Malaysia project involves transforming a military airport near Kuala Lumpur into high-end housing and offices, part of an effort to lure more investors and tourists to the Malaysian capital.

Tony Pua, member of parliament with the opposition Democratic Alliance party, has asked 1MDB to disclose the sale and purchase agreement between the companies.

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