Sow My Seeds

Do you own some SMRT shares? 

If yes, then you would have recently heard that Temasek is offering to acquire your shares. However, the acquisition is not by way of an offer but by way of a scheme of arrangement. *Scratch head*.. so what's the difference? And what is it all about?

Here's the details of the scheme of arrangement, simplified for you:

The Background
Very recently in July, SMRT announced a proposed sale of its operating assets from the CRFF (current rail financing framework) to the NRFF (new rail financing framework). As part of the transition to the NRFF, LTA will purchase the operating assets which include MRT and LRT lines.


Bearing in mind the short term pressures of being a listed company (to be as profitable as possible for the shareholders), privatization will provide greater flexibility for SMRT to focus on its primary role of delivering safe and high quality rail service.

Temasek currently owns 54% of SMRT. Following the release of NRFF announcements, Temasek proposed to acquire all shares in SMRT (other than those already held by Temasek) to take it private.

The Offer For Your Shares 
$1.68 per share in CASH

Not A General Offer
The acquisition is by way of a Scheme of Arrangement.

In the case of a general offer, the offeror (usually major shareholder) has to build its shareholdings till the required level of 90% before it can delist.

By a Scheme of Arrangement, the acquirer (the major shareholder, in this case Temasek), through a Scheme Meeting of shareholders, have to satisfy two conditions for the Scheme to go through:

- 75% in value of Scheme Shares voted at the meeting
- Majority in number of shareholders present and voting at the Scheme Meeting.

This means that at least half of the shareholders present have to vote yes, and they must collectively hold 75% in value of the shares excluding Temasek's holdings.

On the basis that it is approved, all the shares will be acquired, and of course, SMRT will be delisted. 

According to SMRT President and Group CEO Desmond Kuek, during the Joint Briefing by Temasek and SMRT, on why it is a Scheme of Arrangement and not an offer:

"The reason for this is that Temasek already owns a majority of shares in SMRT. Its intention is not to increase its holding but to delist the company and take it private. To do this, we need the support of our shareholders."

Can Temasek Vote At The Scheme Meeting? 
The answer is no, as minority shareholders will decide on its outcome.

Can The Price Be Increased? 
So far, SMRT has announced that they do not intend to increase the Scheme Price. Technically, the Scheme does not allow SMRT to revise the offer, because if they fail in the Scheme this time round, they will have to wait a year out.

Date,Time & Venue Of The Scheme Meeting
By now, you would have received in your letterbox, a mail informing you of the Scheme Meeting and the things that would be discussed then. Details of the Scheme Meeting are as follows:

Date: 23 September 2016
Time: 2.30pm
Venue: The Star Theatre Level 5, The Star Performing Arts Centre, 1 Vista Exchange Green, Singapore 138617.

If you are unable to make it, you can appoint a proxy to attend, speak and vote on your behalf. The last date and time for lodgement of the Proxy Form is 27 September 2016, 2.30pm.

Analyst Views
Several analysts have advised minority shareholders to Accept The Scheme, in view of the significant business risks and attractive P/E. Please note that the recommendation by analysts to accept the scheme does not equate to the privatisation going through. The privatisation is still dependent on the outcome of the Scheme Meeting, whereby the two conditions (mentioned above) has to be satisfied. You can view their write-ups and rationale here:

SMRT Corporation - UOB Kay Hian 2016-08-24: Accept The Offer And Move On

SMRT Corporation - UOB Kay Hian 2016-08-10: 1QFY17 Earnings Bogged Down By Rail Pains: Accept Offer

SMRT Corporation - Phillip Securities 2016-08-10: More of the same dour news

SMRT Corporation - DBS Research 2016-08-10: Reiterate View To Accept The Offer

SMRT Corporation - OCBC Investment 2016-08-10: WORSENING PROFITABILITY - TAKE THE OFFER

SMRT Corporation - RHB Invest 2016-08-10: Reaffirming The Case For Investors To Take The Offer

SMRT Corporation - CIMB Research 2016-08-08: Minority shareholders should accept the offer

And many more reports dated July 2016 that you can find here.


Have a question about your SMRT shares? Please feel free to drop me an email at lyndellwong@limtan.com.sg