When it was first listed on the Singapore Stock Exchange in 2000, it prided itself as the world’s first listed metropolitan rail company that was publicly listed.  More than a decade down the road, with epic disruptions during the peak shopping period, cracks are appearing on this grand experiment once lauded as a world class public transport system. Rather than criticise SMRT’s operational incompetence, this post will explain how SMRT was structurally ill-conceived by the government and SMRT itself. 

The argument for privatization was that it improved efficiency and sustainability in the long-term while ensuring that operators stay on their toes and continue to reinvest profits into the business (which is after all a public service).  It’s pretty hard to disagree as capitalism and its related ideas has been prevalent in our time. Being a private company does have its advantages over a state-owned enterprise; although many continue (including premium blogs) to criticise the fact that SMRT is making a profit!

The weakest argument is that since it is providing a public service, it should not be making a profit at the expense of the commuters. However, we all know that without decent profits, the rail system would gradually fall in derelict (unless we would want govt to subsidise it endlessly). The problem really lies in how much profit it should make and how it should distribute its profits as a company that provides a public service.

SMRT’s Dividend Policy

SMRT has a policy that guides it to distribute at least 60% of their profits as dividends. In fact, it has consistently (since 2006) distributed about 75% or more of their profits. For example, in 2010, it earned 10.7c per share and distributed 8.5c as dividend, amounting to almost an 80% distribution of its profits. Hence, if SMRT consistently distributes most of its profits back to its shareholders, how much does it have to to competently maintain, renew, reinvest and innovate on its operations?? Does it then go against the whole purpose of why it was privatised in the first place?  In the years when Singapore’s population was booming due to immigration policies, why didn’t SMRT retain and reinvest more of its profits rather than continue to distribute high dividends (and continue to stress the rail systems)??


Besides an internal policy to distribute 60% of its profits, SMRT can propose a special dividend to enhance shareholder value.

Since 2006 SMRT has distributed more than 75% of their profitsas dividends to shareholders except in 2009 where the distribution was 72%.

An indirect taxation

So, since so much of its profits are distributed as dividends to shareholders, who are SMRT’s shareholders? Almost everyone on the street would say it belongs to zheng hu and they are right.Temasek owns 55% of SMRT and the amount they get yearly in dividends is princely. What a brilliant method to impose an indirect tax on commuters while recouping its investment for building the rail infrastructure!! (Great thinking by the scholars!) Hence, with a majority chunk of SMRT owned indirectly by the government, should it not be responsive to realise that the re-investment into existing rail infrastructure was inadequate and incommensurate with the population growth?? Perhaps it is also because SMRT was seeking to maximise profits while ensuring that they distributed high dividends that basic security requirements of a public rail operator were ignored which led to the cases of vandalism earlier this year.

Temasek owns almost 55% while the other big money shareholders make up almost 74%.

Fare hikes and increasing ridership

With fare hikes almost every 2, 3 years since it was listed in 2000 and an increasing train ridership, SMRT’s dependency on fare-based revenue is still a high of about 80%. That is to say 80% of their revenue is derived from commuters paying public fares for trains and buses. Theoretically, if SMRT is able to reap handsome profits from its advertising, commercial rental and overseas operations, it would be able to delay fare hikes to commuter. But due to its inability to do so, SMRT had to time and time again request for a fare hike (which would invariably be given by PTC) in order to maintain its profit margins and maintain its dividend policy. For this reason alone and not the service disruptions, CEO Saw Piak Hwa should vacate the post as she had enough time to proved her mettle, or lack of it. Until today, Raffles Xchange remains the only notable commercial development of SMRT while other Xchanges such as the Dhoby Gaut one remains dearth of traffic.


Hence, after a decade of high dividends and increasing shareholder value, the government and Temasek should take this opportunity to review this model of ownership where a public service company is listed on the stock exchange. It is also ironic that many who can only depend on public transport, cannot afford equities that are listed to provide them this essential service. No doubt, public transport companies should be profit making, but should they be publicly listed? Should they choose to maximise profits at all costs and maintain a dividend policy that would seek to make the rich richer? Should they have a guidance on the rate of return on equity (for fare-based revenue) so as to prevent over-exuberance profit making?

Perhaps even SMRT should be delisted and privately owned by Temasek and cornerstone investors. Ever more should employees of SMRT begin to own part of their company (in terms of shareholding) so that they can feel proud to work in the public service and provide commuters with a “world class experience” – something which was sorely missing from recent events.

Trains are after all machines and it is without a doubt that breakdowns would occur but are the policies and  long structure of SMRT and its symbiotic relationship with the government at the expense of the commuters??

PS: Commuters should also learn to be more gracious as there were many reports of abusive and abrasive commuters and people who ignored children and elderly.


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