Singapore Rail Operator to Transfer S$991 Million Assetsby and
Rival SBS Transit’s shares surge to the highest since 2008
Singapore rail asset revamp follows deal with bus companies
Singapore’s biggest train operator will transfer S$991 million ($737 million) of rail, signal and related assets to the national transport regulator in an overhaul of the transit system after service disruptions in the past four years dented the company’s reputation.
SMRT Corp. will move some 60,000 operating assets to the Land Transport Authority, pending shareholder approval, by September, the LTA said in an e-mailed statement Friday. That will leave the train operator light on assets, recruit some 700 more people to improve maintenance and offer better services.
Shares of rival operator SBS Transit Ltd. rose to the highest level in more than eight years in Singapore trading after the government said it’s negotiating a similar deal with the company as well. Five years of talks with SMRT led to Friday’s deal amid public criticism of service disruptions in a country famous for its clean trains and buses and a high-quality public infrastructure.
The train disruptions led to the government tightening rules on maintenance and supervision. Singapore Transport Minister Khaw Boon Wan appointed an engineering specialist in October last year to advise on rail transformation and said the government was discussing changes in the industry structure to bring about “better alignment of incentives.”
Under the previous framework, rail operators owned operating assets, such as trains and the signaling system. They were then responsible for building up, replacing and upgrading the operating assets.
"As operators bear the full financial risk, they may be too cautious to undertake costly capacity expansion, replacement and upgrading works," the LTA said in the statement explaining why such a deal was done. “The government is not nationalizing the rail system.”
Trading of SMRT shares was halted before the announcement. Shares of SBS gained 8.9 percent to close at S$2.70, the highest price in more than eight years.
SMRT’s rail-related expenditure could have reached S$2.8 billion over the next five years under the current regulations, the company in a separate statement Friday. That’s more than double the S$1.3 billion in the last five years. Maintenance costs have also increased and make up for 45 percent of the rail fare revenue in the year ended March, the company said earlier this month.
Operating profit at the company’s rail operations dropped 23 percent last year and it would have reported a loss of S$8.5 million if it weren’t for the property tax refund the company received, SMRT said in April.
The regulator also will shorten licenses for train operators to 15 years from 30 to 40 years at present, according to Friday’s statement. The revised plan for rail operators also allows for some profit and risk sharing between the government and SMRT.
The company plans to use the funds it receives for the asset transfer to repay debt used partly to buy the trains, SMRT said, adding that it won’t pay any special dividend to its shareholders.
SMRT currently operates three metro rail lines in Singapore and SBS Transit runs two. Singapore is building its sixth line that will start operations in 2019 as part of its plan to double the country’s rail link in the next decade.
SBS Transit currently operates the Downtown Line that was awarded in 2011 under the new risk and profit sharing guidelines.
The rail overhaul is similar to the revamp of the city-state’s public bus system in 2014. The government then said it will take ownership of the bus infrastructure such as depots and vehicle Operators then bid for the right to run the services.