Singapore SMRT shares up as investors seen accepting Temasek buyout offer

SINGAPORE - Shares of SMRT Corp Ltd jumped as much as 8 percent on Thursday, a day after Singapore state investor Temasek agreed to buy out the rest of the rail operator for S$1.18 billion, an offer several analysts recommended to shareholders.

SMRT, in which Temasek holds 54 percent, has drawn criticism in recent years after several breakdowns sparked public outcry in a country long known for its efficient and reliable public transport. "We think it makes sense for investors to use this opportunity to cash out for other investment opportunities,"said Eugene Chua, an analyst with OCBC Investment Research.

SMRT's shares were trading at S$1.65 in the afternoon, paring some gains from its earlier figure of S$1.67. Temasek offered S$1.68 for each SMRT share and plans to delist the company.

The government also said last week it would buy almost S$1-billion worth of metro train assets from SMRT so that Singapore's main rail operator can focus on providing commuters with reliable and well-maintained services.

SMRT has said the rail financing framework had become unsustainable and fare margins had been squeezed by rising operating expenses because of maintenance and replacement programmes for its ageing network.

"We assess that the offer price implies marginally lower earnings before interest and tax margin for the rail business versus our estimates," RHB Research said in a note. "We recommend investors to accept the offer, as a low EBIT margin scenario remains a possibility." The proposed buyout arrangement will require shareholder approval.

Since there was a risk the proposed acquisition could fall through, OCBC advised investors to also consider selling part of their holdings in the open market at around S$1.68.