Temasek proposes SMRT buyout

SMRT celebrates 50 years of Singapore. Source: Flickr


Singapore public transport operator SMRT is due to be privatised after Temasek Holdings announced an S$1.18 billion (US$0.87 billion) buyout offer at S$1.68 a share.

The Singapore state investment firm’s offer values SMRT at around S$2.6 billion, it announced. It will mean SMRT becomes a subsidiary of Temasek and will be delisted from the Singapore Exchange.

SMRT faces an estimated bill of S$2.8 billion in rail-related capital expenditure over the next five years, a significant increase compared with the past five years, when it spent around S$1.3 billion.

A Temasek and SMRT joint statement said that privatisation would provide SMRT with “greater flexibility to focus on its primary role of delivering safe and high-quality rail service, without short-term pressures of being a listed company, in the midst of its transition to a new regulatory framework under the new rail financing framework”.

SMRT has faced criticism for service disruptions. Earlier this month, the firm revealed that defective trains had been returned to the Chinese manufacturer after cracks were discovered in the structure connecting the car body to the undercarriage.

The joint announcement said SMRT was “expected to face challenges, even under the new framework, with costs and uncertainties associated with an ageing and expanded network” and “focus on delivering on existing and new multi-year programmes to support an ageing and expanded network”.

Fares have not kept pace with the increase in capital costs and SMRT’s operating profit dropped by more than 20 per cent from S$9.6m to S$7.4m during the last fiscal year.

The statement said the key service provider would “need to deliver a higher order of rail reliability and service in line with the heightened maintenance performance standards to be determined by the Land Transport Authority”.

Temasek president Chia Song Hwee added that the move to private ownership for SMRT would allow it to “more closely collaborate with on system-level transformation, including its transition to the new regulatory environment without the distraction of being a listed company”.

“We will have greater flexibility to work with SMRT as a private entity to seek sustainable long-term solutions as part of its transition.”

SMRT chairman Koh Yong Guan explained: “Taking the company private will allow SMRT to better fulfil its role as a public transport operator without the pressure of short-term market expectations. It will also allow SMRT to be better supported as it retools and reinforces its core skill sets in engineering and maintenance.”