Temasek mulling over plans to take SMRT private, say reports

SINGAPORE — The Republic’s investment firm — Temasek Holdings — is exploring the possibility of taking public transport operator SMRT private, according to reports yesterday. The reports follow SMRT’s announcement on Friday that it would be selling its operating assets to the Land Transport Authority (LTA).

Temasek — the Republic’s investment firm — currently has a 54 per cent stake in SMRT and is weighing an offer to buy the remaining 46 per cent that it does not own, news agencies reported citing sources. The potential buyout offer is still being discussed and there is no certainty it will result in a deal, according to a Bloomberg report citing a person with knowledge of the matter.

SMRT has a market value of around S$2.4 billion, indicating that it might cost Temasek S$1.1 billion to take the train operator private. The train operator runs three rail lines while rival SBS Transit runs two. Singapore is also building a sixth line which is expected to be ready in 2019.

Mr Stephen Forshaw, a spokesman for Temasek, said by e-mail that Temasek does not comment on market speculation and rumours. Meanwhile, Mr Patrick Nathan, Vice President, Corporate Information and Communications of SMRT Corp said “We do not comment on market speculation and rumours.”

In a briefly worded filing to the Singapore Exchange (SGX) on Monday morning, SMRT said it wishes to announce a continuation of the trading halt pending a possible announcement and did not elaborate. Its shares last traded at S$1.545 each.

Temasek has increased its stakes in other listed firms in the past and this was not the first time talk has surfaced of SMRT being taken private, CMC Markets analyst Margaret Yang said. “It might try to help the operational efficiency of the company (SMRT) and it will be easier to do so by taking it private,” she explained.

The SMRT privatization talk comes after LTA said last week that it will buy the transport firm’s operating assets — for the North-South and East-West lines, the Circle Line and the Bukit Panjang Light Rail Transit — worth S$1.06 billion. The deal will take effect on Oct 1, if SMRT shareholders approve. The assets include trains and the power supply and signalling systems.

Assistant Professor Terence Fan, a transport specialist at the Singapore Management University (SMU) noted that the rumours of a buyout have surfaced after last week’s announcement and “it shows something about the change in value of SMRT shares.” The valuation of SMRT shares going forward is unclear as it will become an asset-light company after the transfer of operating assets.

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.

Calling the possible move a “judgement call” for Temasek, National University of Singapore transport researcher Professor Lee Der-Horng explained “Temasek is (SMRT’s) largest shareholder, and if (SMRT’s) share price goes up, it would benefit, but if share prices goes down it would suffer. So instead of letting SMRT be so vulnerable, Temasek as its largest shareholder should do something – buy back all the shares to have full control.”

Beyond share price valuations, Asst Prof Fan noted that once delisted, a firm can “focus more on making investments that aim to create long-term, sustainable advantages”, without the need to report its performance every few months.

A motivation for taking a company private is also “to give management the confidence that the owners have a longer term orientation and will support measures to promote long term growth and sustainability”, said SIM University senior lecturer Walter Theseira. Publicly-traded companies tend to have “short-term orientation because they are under pressure to deliver steady dividends and earnings growth to their public shareholders,” he noted.

Limited overseas opportunities

Another factor, CMC’s Ms Yang said , was that overseas opportunities are limited in the current market environment, which might prompt an investor like Temasek to look at domestic blue chip investments.

Temasek recently reported its first annual decline in portfolio value since 2009 as volatile markets globally hurt the performance of its investments, and warned that lower returns continue to loom in the years ahead.

Its net portfolio value fell 9 per cent in the financial year ended March 31 to S$242 billion, down from S$266 billion in the previous 12 months, the company said in its annual review. Financial and offshore and marine were two segments that experienced the “most significant declines in values”, it said.

However, it ended the year in a net cash position. Dividend income was steady at S$8 billion, or about 18 times over interest expense.

With Agencies