Temasek divests SMRT stake

Government agency takes advantage of record high share price.

Singapore government investment arm Temasek Holdings divested a 7.3% stake in SMRT Corporation yesterday (August 2), raising $122.1 million ($73.6 million) from the JPMorgan led deal. A total of 110 million secondary shares were sold at S$1.11, which represented a 4.3% discount to the stock's spot close.

As a result of the deal, Temasek's ownership will drop from 62.1% to 54.8%, while the freefloat will expand to 45.2%. The deal equated to a fairly weighty 66 days trading. Indeed, aside from wanting to cash out at a high share price, one of Temasek's main rationales for the deal was to boost liquidity in the stock.

Fund managers say the order book closed just under two times covered with participation by about 40 accounts, of which half were new to the stock. By geography, the order book split 55% Asia, 35% Europe, 10% offshore US.

The chief selling point of the deal is likely to have been its dividend yield. At a time when Singapore's listed Reits have suffered sever yield compression, SMRT offers a considerable pick up.

At issue price, the deal will yield about 6% based on an 80% pay-out ratio. Over the past couple of years, SMRT has opted for a fairly aggressive pay-out ratio based on its huge cash generating abilities.

Some analysts now wonder whether this will be cut back as the company needs to spend money to upgrade its taxi, bus and train fleet. Others have recently initially sell recommendations on the stock, based on its stellar performance.

Year-to-date, the stock is up 31.8% and 79% over a one-year period. Partly this outperformance relates to the increase in dividend yield, which has almost doubled over the past couple of years and partly to new business initiatives.

In addition to its train and bus fleet, the company has been pushing its new taxi service, with EBIT from this division growing 500% year-on-year by the end of the first quarter of this year. Alongside a slight increase in train ridership and decreasing interesting expenses, this helped push overall net income up 13.7% to S$23.9 million.

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