The Ministry of Finance (MoF) has signed a shareholder agreement that will see the ministry take over 1MDB's stake in the Bandar Malaysia development project, reports The Wall Street Journal (WSJ).

The agreement will see MoF hold a 40 percent stake in Bandar Malaysia Sdn Bhd, the joint-venture company that will develop the 486-acre site of the former Sungai Besi Royal Malaysian Air Force base.

This was reportedly revealed in a statement from the consortium that owns the other 60 percent of the project.

1MDB had earlier disposed 60 percent of the stake in the real-estate project to a consortium comprising China Railway Engineering Corp, the Malaysian unit of China Railway Group, and Iskandar Waterfront Holdings Bhd in December last year for nearly US$2 billion.

According to the WSJ report, a consortium of foreign and local banks had also signed a memorandum of understanding to set up a fund that will finance investors in Bandar Malaysia projects.

The lenders reportedly included include Bank of China Ltd., Industrial & Commercial Bank of China Ltd, China Construction Bank Corp, Malayan Banking Bhd and CIMB Group Holdings Bhd.

The takeover of 1MDB's stake in Bandar Malaysia by the ministry came against the background of news that the sovereign fund's problematic reputation is dragging down its project partners as banks refused financing support for projects they are linked to.

Last month, reports quoted Deputy Finance Minister Johari Abdul Ghani as saying that banks are reluctant to give out loans to the 1MDB's project partners due to the Malaysian fund's issues.

"Right now the issue is... you know Tun Razak Exchange (TRX), we have a joint venture with Land Lease (a company listed in Australia). They cannot move because the project partners cannot get financing because of the 1MDB issue.

"In Bandar Malaysia, (it is) also the same thing. So it is very difficult for local or international banks to finance when you have issues in 1MDB," Johari was quoted to have said.

He explained that this was why the Public Accounts Committee (PAC) had recommended that 1MDB's assets and subsidiaries be placed directly under the Finance Ministry.

The debt-ridden 1MDB is being investigated by Malaysian authorities for alleged mismanagement which saw it racked up billions in debts, though overseas authorities are looking into the fund for suspicion of money laundering and embezzlement.