Singapore investment firm Temasek Holdings is likely to make an offer to buy out transport operator SMRT Holdings and take it private, sources said.
The announcement of the deal, which could happen as early as this week, could see SMRT coming full circle as it was previously a wholly owned Temasek company. Both Temasek spokesman Stephen Forshaw and SMRT spokesman Patrick Nathan said: "We don't comment on market speculation or rumours."
A trading halt of SMRT's shares was called last Friday just before a new rail financing framework was announced. SMRT said around noon yesterday that it was continuing its trading halt pending a possible announcement. Another source close to the deal said both companies have been working on it since the start of the year. Bloomberg and Reuters also cited sources saying the deal was on the table.
Temasek owns 54 per cent of SMRT, which has been listed on the Singapore Exchange since July 2000 and has a market value close to $2.4 billion. The company's shares were trading at $1.545 before the halt was called. Under the new rail financing framework, the Government will take over all operating assets of the North-South, East-West and Circle lines, as well as the Bukit Panjang LRT Line, from SMRT for $1.06 billion.
In turn, SMRT will run the trains on these lines and retain a share of the earnings. But it will have to pay an annual licence charge to the Land Transport Authority. The fee, which varies according to SMRT's profitability, will go into a sinking fund for asset replacement.
SMRT chief executive Desmond Kuek said last Friday that the $1.06 billion will not be distributed to shareholders but be used to pare down debt and raise headcount by another 700 to improve service.
CIMB Private Bank economist Song Seng Wun said Temasek's move to take the company private makes sense now, especially if there are many things to be fixed that will require time. "If it goes ahead, it would give SMRT time away from the stresses of being a listed company which has to focus on short-term goals," he said.
But experts hesitated to say whether the buyout would have any immediate impact on commuters.
SIM University senior lecturer Park Byung Joon said: "It's one way to have more public accountability, but it is not nationalisation. SMRT will not belong to the Government and is under an investment firm, whose priority will be how much risk they are going to take and how much returns they are going to make."
The proposed takeover sets up a challenging scenario for Temasek, which has to persuade about 49,000 registered shareholders, made up mostly of individual retail investors, to get on board.
"Many of these shareholders have held the shares for a long time because it is a stable company. So the price has to be right for the minority shareholders to let go," said veteran investor Mano Sabnani, who holds 20,000 SMRT shares.
Several analysts downgraded SMRT's stock price yesterday after the announcement of the new railway financing framework. Phillip Securities said the framework will improve cash flow but does nothing to improve profitability. Rail represented about 52.5 per cent of SMRT's total revenues last year.
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