SMRT shares up 20% on asset sale speculation


LISTED public transport operator SMRT Corp’s shares yesterday staged their biggest-ever one-day gain in recent memory, soaring almost 20 per cent, as investors speculated that a plan for SMRT to sell its rail assets to the Government was imminent.

Shares of rival rail operator SBS Transit and its parent company ComfortDelGro also rose 7 per cent and 3 per cent respectively.

Market watchers said punters may be assuming that SBS Transit will do likewise with operating assets of its North-East Line.

The Straits Times understands that Temasek-owned SMRT, led by former army chief Desmond Kuek, made a detailed submission to the Government on Wednesday following months of discussions to move its rail business to a new financing framework.

From the outset, all rail infrastructure in Singapore came under the ownership of the two operators here. This means they are in charge of maintaining and replacing trains, signalling systems and other equipment involved in operating train services here.

But in 2010, the Government introduced a new financing framework. SBS Transit’s Downtown Line was the first contract under this framework. Under it, the Government owns all assets, and is responsible for replacing them. This allows operators to focus on meeting operating service standards and maintenance.

Since Mr Kuek took over the helm at SMRT in 2012, he has expressed keen interest in converting SMRT’s existing lines – the North-South, East-West and Circle lines – to this new framework. This would free SMRT from having to incur huge capital expenditures on asset replacement, which can be a drag on profits.

This spending is expected to increase, given the tougher stance the Government is taking on service outages following a spate of high-profile train breakdowns that started about three years ago.

But the main stumbling block to Mr Kuek’s plans has been the valuation of SMRT’s assets, as well as the remaining years of its current operating contract.

The North-South and East-West lines’ contracts end in 2028, while that for the Circle Line expires in 2019.

“It is hard to arrive at a price that both the public and… shareholders will be happy with,” a source close to the talks said.

Yesterday, CIMB analyst Gary Ng said in a report that the financing framework move was “highly possible” and that SMRT was “making inroads with regulators”.

The new framework would be a more “sustainable” model and lead to more predictable cashflows for SMRT, he added.

Some investors yesterday also bet that if SMRT’s proposal were accepted, the same framework would be applied to SBS Transit’s North-East Line.

Maybank Kim Eng analyst Derrick Heng said a switch to the new rail financing framework would take place “eventually”, but the transition may not be more favourable to the public than shareholders in the short term.

The market was also rife with rumours yesterday of SMRT’s privatisation – and even nationalisation – but analysts who follow the company said this was less likely.

SMRT’s share surge – which saw it climb 21.6 per cent to hit an intra-day high of $1.24 before closing at $1.22 – attracted the attention of the Singapore Exchange.

The regulator queried the company on this, but SMRT said it did not know the reason for the surge.

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