Industrials

Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

Singapore's new transport minister has revived speculation of some kind of nationalization of the city-state's subway assets. Shareholders of SMRT and SBS Transit, the two owner-operators, can't wait for the authorities to relieve them of the misery of sprucing up an aging, creaking infrastructure that's become too expensive to maintain with private capital.

Avoiding Train Wreck
Singapore's dominant rail operator's shares recover on asset sale hopes
Source: Bloomberg

Once the government takes over the responsibility for infusing funds, however, these investors would still like their companies to run train services. From the point of view of the network's unhappy customers, that would be unfair. A better solution would be to follow the model of the Singapore zoo, which is indirectly owned by the ministries of finance and trade and industry. If taxpayers are going to bail out private rail investors, they may as well keep future dividends, too.

Minister Khaw Boon Wan's comment that combining design, construction, operations and maintenance might be better for a world-class subway service sent SMRT and SBS shares up more than 5 percent on Friday. They pared those gains in Monday trading. Considering how much returns on invested capital have declined over the past six years, it's only natural that investors want the companies to become more asset-light by selling trains and signaling equipment to the government:

Gone Off Track
Returns on invested capital for Singapore's commuter rail operators have crashed
Source: Bloomberg

But why give SMRT and its smaller rival SBS get-out-of-jail cards? Once their cash flows are stable, they may just go back to paying hefty dividends, as they did when they were under-investing in the network. Long waits and congested trains contributed significantly to the Singapore ruling party's worst-ever election performance in 2011. Four years later, service disruptions are still commonplace, and it's increasingly clear that Khaw's vision of catching up with Hong Kong in reliability of the subway system will cost billions in public funds.

In that case, taxpayers should be able to claim the gains on those investments, just as they will reap the benefits of the current major expansion of Singapore's wildlife reserves. Mandai Safari Park Holdings, the company driving that project, owns 88 percent of Wildlife Reserves Singapore, which in turn owns and operates the zoo, a night safari, the bird park and a river safari. The Singapore Tourism Board, which is controlled by the trade and industry ministry, owns the remaining 12 percent. Mandai is owned by the state investment company, Temasek, which in turn has the finance ministry as its shareholder. These attractions already receive a combined 4.6 million visitors a year, and there are no reports of lions facing service disruptions during peak feeding hours.

Given the city's efficient public sector, there's really no reason why the zoo can't be the model for Singapore's rail transport. Full nationalization -- of not just the infrastructure but also the services -- could help improve service quality. Instead of wondering if it should keep or sell its 55 percent shareholding in SMRT,  Temasek should perhaps just buy out the rest.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Andy Mukherjee in Singapore at amukherjee@bloomberg.net

To contact the editor responsible for this story:
Paul Sillitoe at psillitoe@bloomberg.net