Temasek offers US$884mn to buyout SMRT

Bloomberg

SMRT Corp shares rose after Singapore’s state investment firm Temasek Holdings Pte offered S$1.2 billion (US$884 million) to buy out the island-city’s biggest train operator, 16 years after the company became the first Asian subway operator outside Japan to list shares.
The shares advanced 6.5 percent to close at S$1.645, resuming trading Thursday after a suspension on July 15. The stock rose to as high as S$1.67 earlier in the session, less than Temasek’s offer of S$1.68 a share that valued the rail operator at S$2.6 billion. The price is fair and final, Temasek President Chia Song Hwee said Wednesday after the proposed buyout, first reported by Bloomberg News this week, was made public.
At least three brokerages said investors should accept the buyout by Temasek, which is seeking to take the subway operator private after multiple service disruptions since late-2011 evoked public criticism in a country famous for its clean trains and public infrastructure. Last week, SMRT said it’s transferring S$991 million of rail assets to the transport regulator to focus on improving services.

‘Fairly Compensates’
“We believe the offer fairly compensates shareholders for an expected return that the stock will generate in the next 12 months,” given near-term cost headwinds and uncertainty on rail fares and ridership, Shekhar Jaiswal, an analyst at RHB Research in Singapore.
Analysts have a consensus 12-month price estimate of S$1.43 for the stock, according to data compiled. SMRT shares last traded at S$1.545 on July 15 before the halt.
Malayan Banking Bhd., Oversea-Chinese Bank Corp. and UOB-Kay Hian Holdings Ltd. recommended accepting the buyout in separate research notes. Macquarie Group Ltd. said the offer was generous and Nomura Holdings Inc. called it attractive.
Samsung Asset Management will accept the offer, Alan Richardson, an investment manager in Hong Kong at the fund manager, said by phone Thursday. Samsung Asset owned about 30,000 shares of SMRT as of March 31, according to data compiled.
Temasek currently owns 54 percent of SMRT. The investment firm, which this month reported the first drop in the value of its stakes in seven years, has trimmed exposure to traditional banks and also embarked on a record pace of divestitures as part of a portfolio overhaul. As a group, technology, media and telcos overtook financial companies as Temasek’s biggest industry sector for the first time in a decade.
SMRT offers “predictable cash flows and so slightly less risky investment than the usual investments in tech, consumer services and health care that Temasek generally does,” said London-based Enrico Soddu, head of data at the Sovereign Wealth Center.
Temasek sold shares in SMRT in July 2000, pricing the initial public offering at 61 Singapore cents to raise about S$300 million. The stock failed to enthuse investors on its debut, gaining 0.1 percent.
In the past five years, SMRT’s stock has fallen 12 percent, compared with a doubling in shares of ComfortDelGro Corp., operator of Singapore’s largest taxi fleet and controlling shareholder of the main bus company.
Temasek’s Chia said the state firm was a long-term investor in SMRT, supported the management’s plans and had no intention of losing money. Taking SMRT private would give the company flexibility and enhance rail reliability, he told a press conference Wednesday, adding the buyout wasn’t a nationalization.
“Temasek is an active investor but not an operator,” Chia said. “We want to provide an environment to focus on improving the company. There are risks but it also means the company needs to work to make a decent return.”
The service disruptions had dented the rail operator’s reputation and led the Singapore government to tighten rules on maintenance and supervision. Transport Minister Khaw Boon Wan appointed an engineering specialist in October last year to advise on rail transformation.
As part of the revamp, rail operators were to focus on service instead of having to build up, replace and operate
assets.
SMRT will use the proceeds from the buyout to reduce debt and the company won’t pay a special dividend from the transaction.