Thank you again, @Mandla, Pavan ! I'm glad that you were able to resolve your issue and thank you for posting your solution so that others experiencing the same thing can easily reference this! Since the Microsoft Q&A community has a policy that "The question author cannot accept their own answer. They can only accept answers by others ", I'll repost your solution in case you'd like to "Accept " the answer.
Issue:
When attempting to create azure api using apim operator aks pod, the api is not getting created and fails with an error (see original question above).
Solution (by Mandla, Pavan):
Issue is caused due to a bug in APIM where api not syncing if empty APIM. It is resolved creating test api and api version.