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SMRT invests S$68.4m in China’s Shenzhen ZONA July 17, 2009

Posted by hafizbam in Acquisitions, SMRT, Something New, Transport Events.
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Some of the buses in the Shenzhen ZONA fleet in China.

Some of the buses in the Shenzhen ZONA fleet in China.

Singapore’s leading rail transport operator has invested SGD68.4 million to acquire a 49% equity interest in Shenzhen ZONA Transportation Group Co. Ltd from Shenzhen ZOTO Investment Co Ltd. The other 51% equity will remain with the National Express Transportation Group Co. Ltd. This marks the entry of SMRT into the lucrative Chinese land transport market, after gaining a foothold in the Middle East market through its Palm Jumeirah  Monorail operation in Dubai, UAE.

The price for this acquisition is much lower than the initial figure of SGD89.7 million announced during the first round of agreements in September 2008 which collapsed when the conditions of sale and purchase agreement were not met. In the company’s press release, it was stated that although SMRT’s first acquisition attempt failed, “both companies had continued with discussions, and have now reached a consensus, paving the way for this new agreement”.

This is not surprising considering that Shenzhen ZONA is a fast-growing transport operator in Shenzhen, growing its fleet of 300 buses in 2002 to 803 in seven years. It has also recently secured the right to run buses in the growing BaoAn district which could further fuel the company’s expansion and financial growth in years to come. To even hold a 49% share of the company would give SMRT substantial gains which could offset potential cost increases and potential fall in revenue due to the stricter regulations and lower fares for commuters effected for its bus and train operations here in Singapore since this year.

Of key interest would be SMRT’s first experience in running long-haul and tourist coach services, something it doesn’t have to undertake in its home market. The company will also have its first taste of the car leasing business. And for the first time, trains are not in the picture.

Perhaps this could be one of the factors pushing the company to help materialise this overseas acquisition, as it would widen the company’s portfolio of offerings and gain significant experience in running different modes of land transport. This could be a boost for the company if it intends to participate in highly competitive tenderings in the running of contracted public transport services – a growing trend around the world and which is picking up in Singapore itself. Already SMRT has failed in its shared bid with Veolia and Bombardier to run Melbourne’s train systems (the 8-year contract went to Hong Kong’s MTR Corporation).

Or maybe it could also stem from the company’s determination to be the next ComfortDelgro, the other local public transport giant and parent of SBS Transit, who now runs bus, taxi and coach services in many countries around the world including the UK, Australia and China. It has expanded so much to even venture into other related businesses such as the running of a bus station and driving schools in China, catapulting itself to be the world’s second largest land transport operator, an impressive feat for a Singaporean firm.

Of course, while SMRT may not be able to match the size of ComfortDelgro’s overseas businesses, it is obvious that the company has been very keen in expanding overseas, though luck may not have been in their favour. Perhaps it is time for SMRT to look further west and bid for the rights to operate the numerous train networks of Europe?