SMRT shareholders count down to privatisation vote

It is almost crunch time for one of Singapore's most closely watched privatisation deals as SMRT shareholders count down to a meeting next Thursday that will pass judgment on the buyout offer by Temasek Holdings.

Most investment analysts have been supportive of the offer - $1.68 per share - that Temasek tabled in late July.

The offer is structured as a scheme of arrangement. Temasek needs more than 50 per cent of shareholders present in person or by proxy to vote "yes".

These shareholders will also have to hold at least 75 per cent of the value of total shares held by all at the meeting.

The meeting will be held at the Star Theatre in Buona Vista - which has a capacity of 5,000 - at 3.30pm.

The Straits Times understands that at least 2,000 have so far registered to attend the meeting, which will start immediately after an extraordinary general meeting at the same location where shareholders will vote on the sale of SMRT's train assets to the Government as part of the New Rail Financing Framework (NRFF). SMRT spokesman Patrick Nathan said "a large number" have submitted proxy forms for the scheme meeting.

The deadline for lodging forms is 3.30pm on Tuesday.

Investor S.W. Tan has owned 2,000 SMRT shares since its initial public offering in 2000.

"I am going to accept the offer. The offer is not spectacular but still decent and, for me, selling at $1.68 will be a net gain," Mr Tan said.

He added: "I also see this deal somewhat in the light of national service. The company has had many issues maintaining its service quality, caught between delivering shareholder value and managing maintenance costs. To fix the issues, I think it needs to be moved from the market spotlight."

Fellow investor H.P. Goh, who owns 1,000 shares, said: "I am likely to accept the offer. It is fair... given that the profitability of SMRT has weakened over recent years."

But some feel that the NRFF should be renegotiated so that SMRT shares fetch a higher value.

Activist investor Mano Sabnani said that Temasek's offer price is made lower by the 5 per cent Ebit (earnings before interest and taxes) margin cap on rail business, which is a mechanism attached to the NRFF.

He said the cap should not be applicable to the more lucrative non-fare segment of the rail business, such as income from shops and advertising spaces at stations.

He noted: "Five per cent is a fair return to pay a rail operator to run a safe and efficient rail system.

"But you should not take away its side income. It is a credit to SMRT that it created these exchanges, mini malls at stations, and these give a lot of income to it."

OCBC analyst Eugene Chua said investors should cash out, given SMRT's soft earnings outlook and a significant downside risk to its share price, which he assigned a fair value of $1.40.

DBS analyst Andy Sim said: "In our view, the offer price looks attractive vis-a-vis our target price of $1.28, taking into consideration the revised profitability outlook under the NRFF."

Voting on two key issues

Q What is the shareholders' meeting on Thursday about?

A Shareholders are meeting to decide on two things. First, at 2.30pm, they will vote on resolutions pertaining to the New Rail Financing Framework (NRFF), which was finalised in July. They will be asked whether to approve the sale of SMRT's train and other operating assets to the Government for $1.06 billion, and the acceptance of the NRFF licence.

At 3.30pm, shareholders will vote on the privatisation of SMRT.

Q Why does Temasek want to take SMRT private?

A After the NRFF was finalised, some analysts said they had hoped that SMRT would get a better deal. SMRT will shoulder "significant risks and challenges" under the NRFF, said Temasek, which intends to let SMRT have greater flexibility to deal with an ageing network and network expansion plans as a private company.

Q What's in it for shareholders?

A Shareholders will not get any special dividends from the $1.06 billion asset sale. But Temasek is offering them $1.68 in cash for each share they own as part of the privatisation offer.

Q What needs to happen for Temasek to take SMRT private?

A Two conditions must be met for the privatisation to be approved. More than 50 per cent of shareholders present at the meeting or voting by proxy (excluding Temasek, which is a 54 per cent shareholder) must vote yes.

The second condition is that, of all the shares voted, those voting yes must represent at least 75 per cent of the value of the total shares held by all at the meeting.

Q Might Temasek revise its offer?

A Temasek said it will not revise its offer price.

whwong@sph.com.sg

marilee@sph.com.sg

This article was first published on September 24, 2016.
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