SMRT triple-A credit rating not affected by Temasek's buyout offer, says S&P

SINGAPORE - S&P Global Ratings said on Thursday (July 21) that its credit rating on SMRT is not affected by the Temasek Holdings buyout offer for the rail and bus operator.

"Our rating already incorporates a very strong link between the company and its majority owner, the Government of Singapore, through Temasek, which is unlikely to change even if the company becomes a wholly owned subsidiary," said S&P, which rates SMRT as triple-A with a stable outlook.

Temasek on Wednesday announced its offer to buy the 46 per cent of SMRT shares it does not already own for S$1.68 per share. The S$1.18 billion offer will need approval from the courts and shareholders. If the deal goes through, SMRT will be privatised and delisted from the Singapore stock exchange.

Said S&P: "In our view, the proposed takeover demonstrates the high political importance the Singapore Government gives to the provision of safe and reliable transportation and underlines the critical role of SMRT as a key provider of essential public transport services in the country.

"The Temasek offer does no change our assessment of SMRT's 'aa-' stand-alone credit profile because we expect SMRT to have stable profitability and maintain a solid balance sheet."

Temasek's offer comes after the government announced last week that it will take over all the operating assets of SMRT's North-South, East-West and Circle rail lines, as well as the Bukit Panjang LRT Line, for S$1.06 billion in the so-called New Rail Financing Framework (NRFF).

S&P said the NRFF will reduce the capital intensity in SMRT's business model and make margins in its core rail operations more predictable.

Said the agency: "The rating on SMRT already captures a degree of risk that the company may have to invest to meet higher reliability requirements and withstand higher competition from SMRT's lack of control over operating assets and the Government's intention to promote contestability.

"A successful buyout by Temasek will allow the SMRT management to concentrate on operations and benefit from additional cost savings from delisting. "

S&P however added that its rating on SMRT could come under pressure "if it pursues non-regulated activities, significant offshore investments, or if market-based competition significantly increases, weakening the company's role for the Singapore government".