Offer an alternativ​e better than nationalis​ation

Dear Straits Times,

I refer to the 22 Jul 2011 letter by Mr Toh Cheng Seong. Mr Toh asked the WP to state the cost of buying out outstanding shares of SMRT and SBS.

Cost of buying back SMRT shares

According to SMRT’s 2011 annual report, Temasek Holdings and DBS Group collectively holds 54.3% and 9.01% of SMRT shares respectively. Before we continue we must find out how much of the DBS Group is owned by the government.

According to DBS annual report 2010, DBS Nominees, DBSN Services and DBS Vickers owns 16.01%, 9.82% and 0.26% of DBS Group shares respectively. Since DBS Nominees, DBSN Services and DBS Vickers are wholly owned subsidiaries of DBS Group, their shares are effectively owned by the rest of the non-DBS subsidiary shareowners. In addition, UOB Nominees, which owns 2.91% of DBS Group shares, is 22.45% owned by DBS Group. Therefore, if we allocate the 16.01% + 9.82% + 0.26% + 22.45% of 2.91% = 26.7% of DBS Group Shares owned by DBS Group itself to the rest of the non-DBS shareowners, total government holdings in DBS Group shares is 37.3% (Maju Holdings’ 15.23% + Temasek Holdings’ 12.06%) / (1 – 0.267).

So effectively, the government owns 54.3% plus 37.3% of 9.01% = 57.6% of SMRT shares. So only 42.4% of 1,517,432,196 shares needs to be bought back at the last transacted price of $1.855. The cost of buying back SMRT shares from non-government hands would be about $1.2 billion. SMRT has been making more than $160 million in net profit after tax for each of the past two years. Therefore, the cost of buying back SMRT shares would be recouped in about 7.5 years. If we consider SMRT’s profits over the next twenty, thirty or even fifty years, buying back SMRT is not an unprofitable undertaking.

Cost of buying back SBS shares

According to SBS’s 2010 annual report, ComfortDelgro and DBS Nominees own 75.11% and 1.65% of SBS shares respectively. According to ComfortDelgro’s 2010 annual report, DBS Nominees, Singapore Labour Foundation, DBSN Services, UOB Nominees, DBS Vickers owns 20.18%, 12.09%, 10.83%, 5.29% and 0.16% of SBS ComfortDelgro shares respectively. Based on the government’s 37.3% ownership of DBS Group and DBS Group’s 22.45% ownership of UOB, total government ownership of ComfortDelgro shares works out to be: 12.09% + 37.3% of (20.18% + 10.83% + 0.16%) + 37.3% of 22.45% of 5.29% = 24.2%.

Therefore, government ownership of SBS shares = 24.2% of 75.11% + 37.3% of 1.65% = 18.8%

So effectively, the government needs to buy back 81.2% of 308,472,266 SBS shares at the last transacted price of $1.865 = $467 million. SBS has been making slightly more than $54 million for each of the past two years. The cost of buying back SBS shares would be recouped in less than 9 years. Again, if we consider SBS’s profits over the next twenty, thirty or even fifty years, buying back SBS is also a profitable undertaking.

Therefore over the long term, tax payers won’t have to foot a thing for the purchase of SMRT and SBS shares.

Do taxpayers have a choice?

Mr Toh pointed out that taxpayers have no choice but to pay tax through driving or through taking the cab even if they don’t take the bus or the MRT. Mr Toh is thus agreeable with Mr Giam on this point.

Mr Toh posited that more train commuters could mean more COEs for those aspiring to own a car. That is why improving train capacity and service standard is important to more comfortably accommodate train commuters so that they have fewer reasons to aspire to own a car.

Mr Toh claimed that the WP can do better than hawk a state run monopoly. But state run monopolies such as that which supplies water has shown to operate well and efficiently. The state’s continued monopoly in water supply signals its importance as a public good. Similarly, if the state were to take over the running of public transportation, it too will signal transportation’s importance as a public good.

Mr Toh referred to new rules in the pay TV market that supposedly negates unhealthy competition through exclusive content as an inspiration to how public transportation woes can be better managed. Mr Toh is counting the chicken before they hatch. Until the next battle for Premier League TV content, it remains to be seen if these new rules will work.

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