SMRT likely to receive "extraordinary government support": Fitch

Government backing will be timely and substantial enough to ease capital spending burdens.

In explaining why it affirmed the AAA ratings for the long-term corporate credit ratings of SMRT Corp, Standard & Poor's credit analyst Katsuyuki Nakai said "the likelihood of extraordinary government support for the company has increased. In our view, this support will moderate SMRT's weakened stand-alone credit profile."

"In accordance with our criteria for rating government-related entities, we have revised our assessment of the role between SMRT and the government of Singapore to 'critical' from 'very important,'" Nakai added.

"The change reflects our view that SMRT now has greater political importance for Singapore's public transport policy than we previously expected," said S&P.

"This is demonstrated by the government's intense scrutiny and interventions during rail breakdowns in December 2011. Since then, the government through its regulating agency, the Land Transport Authority (LTA), has more directly assured commuters of tighter regulatory supervision over the quality of services that rail operators provide. LTA has also articulated better co-ordination with SMRT for upgrading the aging rail network while maintaining high operational efficiencies," it said.

"We believe that SMRT's ability to provide reliable train services is critical to maintaining Singapore's seamless transport infrastructure. The company has about 2 million passengers on a daily basis (more than one-third of the Singapore population in 2012). We expect passenger levels to rise as it extends the network, and see a favorable industry outlook," it added.

"We understand that SMRT has high spending requirements under a Singapore dollar (S$) 900 million asset renewal and replacement plan. But in our base-case scenario, we expect the company's capital spending burden to ease in fiscal 2013 (ending March 2014) because of timely cost sharing with the government. We have adjusted the company's debt with cash and short-term investments in excess of S$40 million, which is the minimum cash we expect SMRT will need to operate," it said further.

S&P notes though that "a downward pressure on the rating may also increase if the regulatory and transport policy framework materially changes, which reduces SMRT's role as an essential public transport service provider and leads us to lower our expectation of extraordinary government support to very high from extremely high."

"Also, we may downgrade SMRT if we lower the sovereign credit rating on Singapore," it added.