Returning SMRT to the state

If Temasek delists SMRT Corp and takes it private, it would have come full circle to a point in time 20 years ago when it mooted the idea of floating the transport operator to unlock its value.

The motivation to delist will be somewhat different, though. In essence, it will be part of a bigger picture to bring public transport to a higher level.

Not that a listed entity cannot also be an excellent public transport operator - just look at Hong Kong's MTR Corp, which has been exceedingly successful in serving commuters and rewarding its shareholders.

But sometimes, when an entity is set up to serve multiple masters, it could well end up serving none. In the case of SMRT, it is clear that it has been trying valiantly to juggle opposing interests.

And fairly or unfairly, it has been getting a lot of flak of late for enriching shareholders at the expense of commuters.

Delisting removes this tension. There will no longer be pressure from the market to see which stock gives the best dividend yield.

There will no longer be quarterly financial results to keep reminding the public how much profit SMRT makes (and yet continues to ask for fare increases).

The remuneration of top executives will no longer be in the limelight (because it will no longer be a requirement to declare them).

And more mundanely, SMRT will no longer have to contend with the substantial cost of being listed - quarterly reports, annual reports, AGMs, EGMs, investor relations, financial roadshows, etc etc.

Most crucially, Temasek Holdings will no longer have to share SMRT's future returns with other shareholders.

In the short term, the operator's margins may look less exciting after the new rail financing framework kicks in. But in the longer term, SMRT - freed from its obligation to set aside huge reserves for capital expenditure - can venture into new businesses and geographical areas.

If it becomes as successful as ComfortDelGro Corp in this respect, Temasek will be poised to receive rich dividends.

Philosophically, one could make a convincing argument for having an SMRT that is either listed or unlisted.

With a listed entity, shareholders (presumably the wealthier segment of society) are helping to finance a corporation which provides service to the masses.

In a privatised entity which will be wholly owned once again by Temasek when it is delisted, everybody in Singapore becomes a de facto shareholder. This is because Temasek pays dividends to the Finance Ministry, which in turn uses the money for public projects.

And with the new rail financing framework and government bus contracting system, taxpayers (the wealthier folks) subsidise services used by the masses.

But will the commuter see service rising to a higher level if SMRT is delisted? On one level, yes, since the company will no longer be distracted by its listing obligations.

But on another level, the seemingly systemic flaws within the company could remain.

Also, the quality of rail service does not depend solely on the operator. Much depends also on how well the system is designed and built in the first place.

Going forward, much will also depend on the timeliness of asset renewal and expansion - which will come fully under the purview of the Land Transport Authority in the new financing framework.

The repetitive power faults on the lines and the recent discovery of cracks on 26 new trains are just two signs that the LTA may need to bring its own game to a new level if it wants to be an effective partner in the new regime.

That aside, is there any downside to delisting SMRT? One is the probable loss of information found in the quarterly results and annual reports.

Hopefully, Temasek and the LTA will publish details of the operator's accounts, as well as how much subsidies are expended and what they are spent on on a regular basis.

Is the move a nationalisation of SMRT? Technically, no. SMRT will still be a private entity, except that it is not listed on the stock exchange. But some would say yes, given Temasek's close association with the state.

A version of this article appeared in the print edition of The Straits Times on July 20, 2016, with the headline 'Returning SMRT to the state'. Print Edition | Subscribe