Temasek Said to Weigh Buyout of Singapore Rail Operator SMRT (2)

(Bloomberg) -- Singapore state investment company Temasek Holdings Pte is considering a buyout offer for SMRT Corp., the city-state’s biggest subway operator, a person with knowledge of the matter said.

Temasek is weighing an offer to buy all the shares it doesn’t already own in SMRT, according to the person, who asked not to be identified as the information is private. It currently has a 54 percent stake in SMRT, which has a market value of about S$2.4 billion ($1.7 billion) in Singapore, data compiled by Bloomberg show.

SMRT has faced public criticism for service disruptions in the past four years even as it expanded its network. Singapore said July 15 that SMRT will transfer S$991 million of rail, signal and related assets to the national transport regulator, giving the company funds to recruit more staff and improve train maintenance.

“Managing the transport system will be simpler,” said Song Seng Wun, an economist at CIMB Private Banking in Singapore. “This will help reduce the pressure of having to answer shareholders while the government addresses pressure from the public. The new framework announced last week and this will go hand in hand.”

Trading Halted

Shares of SMRT, which last traded at S$1.545, were halted Friday before the asset-sale announcement. The company said Monday it will continue the halt, pending another possible announcement. SMRT, which has been listed on the Singapore bourse since 2000, has risen 2.7 percent since the start of the year.

The potential buyout offer is still being discussed and there’s no certainty it will result in a deal, according to the person.

“We don’t comment on market speculation or rumors,” Stephen Forshaw, a spokesman for Temasek, said by e-mail. SMRT doesn’t comment on speculation and rumors, Patrick Nathan, a spokesman for the subway operator, said in an e-mailed statement.

Temasek, which had more than half of its assets in China and Singapore, said this month that the value of its stakes decreased 9 percent to S$242 billion in its fiscal year ended March 31. The Singapore state investment firm made S$30 billion in new investments in the 12 months through March, matching the previous year, while divesting a record S$28 billion.

SMRT currently operates three metro rail lines in Singapore, while rival SBS Transit Ltd. runs two. Singapore is building its sixth line, which will start operations in 2019.

Rising Expenditure

As part of the overhaul announced last week, SMRT will move some 60,000 operating assets to the Land Transport Authority, pending shareholder approval, by September. That will allow the train operator to be light on assets, recruit about 700 people to improve maintenance and offer better services.

Under the existing model, SMRT’s rail-related expenditure could have reached S$2.8 billion over the next five years, it said in a statement last week. That’s more than double the S$1.3 billion in the last five years. Maintenance costs have also increased and were equal to 45 percent of the rail fare revenue in the year ended March, the company said this month.

The asset sale is “nothing much to be cheered about,” Roy Chen, a Singapore-based analyst at CIMB Group Holdings Bhd., wrote in a research note Sunday. Chen, who cut his target price to S$1.17 from S$1.40, said the new rail model was a “timely bailout” by the Singapore transport regulator before SMRT potentially ran into solvency problems under the old framework.

The revamp is similar to the one the city-state’s public bus system went through in 2014. The government then said it would take ownership of the bus infrastructure such as depots and vehicle operators then bid for the right to run the services.

(Updates with analyst comments in penultimate paragraph.)

--With assistance from Kyunghee Park To contact the reporter on this story: Joyce Koh in Singapore at jkoh38@bloomberg.net. To contact the editors responsible for this story: Ben Scent at bscent@bloomberg.net, James Poole

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