Singapore state investor Temasek Holdings is set to announce a deal this week to buy out the remaining nearly 46 per cent of SMRT Corp that it doesn't already own, two sources with knowledge of the matter said.
The deal caps a turbulent period for Singapore's main rail operator. SMRT has come under heavy criticism in recent years after a series of train breakdowns led to public outcry in a country long known for an efficient and reliable public infrastructure.
Temasek already owns 54.5 percent of SMRT, Thomson Reuters data shows.
Last week, Singapore's transport regulator said it will buy almost S$1 billion worth of metro train assets from SMRT, in a move aimed at easing SMRT's finances and allowing it to focus on providing reliable and well-maintained services. "This potential transaction could be to address the underlying conflict - that a listed company is not the best entity to run a public service," said Robson Lee, a M&A partner at Gibson Dunn & Crutcher LLP in Singapore.
The deal will be one of Temasek's rare buyouts at a time when it is seeking to boost its US exposure in difficult markets.
SMRT has a market value of about US$1.8 billion. But the deal valuation is unclear given the reduced future margins for SMRT once it starts operating as an asset-light company, said the sources, who declined to be identified because of the sensitivity of the matter.
The Land Transport Authority of Singapore had been in extensive talks with SMRT since 2011 to transfer its train assets to the regulator.
The LTA had been in separate discussions with the city-state's other metro rail operator SBS Transit Ltd on the company's assets.
Last week, SMRT said the rail financing framework had become unsustainable and its rail fare margins had been on the decline as operating expenses had risen significantly due to maintenance regime and replacement programmes for the ageing network. "The constant breakdowns of the MRT trains - that has cost the jobs of two transport ministers - underscore the need for the government to reverse the policy of privatising public services," Gibson Dunn & Crutcher's Lee said.
Temasek and SMRT declined to comment.
SMRT shares in Singapore have been halted since Friday.
In a note, CIMB analysts wrote that other than reviving SMRT's balance sheet strength, the asset sale was nothing much to be cheered about especially when SMRT had no intention of paying a special dividend.
The buyout plan was reported earlier by Bloomberg News.