Tata Steel UK Reworks Pension Scheme, Reignites Deal Hopes
Merger possibility with Thyssenkrupp rises post pact to separate UK business from BSPS
Kolkata: Tata Steel signed an agreement on segregating the company’s UK business from its pension scheme that will potentially free it up to pursue strategic options for the unit, including a possible merger with Thyssenkrupp AG of Germany.
As part of the arrangement, Tata Steel UK will make a payment of £550 million to the British Steel Pension Scheme (BSPS), while 33% of Tata Steel UK’s equity will be issued to the scheme’s trustee. The deal will affect 125,000 members of the Pension Scheme’s expected funding deficit GBP 1-2 billion to pay GBP 550 m from Tata Steel Group to BSPS
get 33% equity stake in Tata Steel UK 1,25,000 (including retired workers) Apportionment Arrangement approved & separation concluded
pension scheme. Tata Steel and Thyssenkrupp have been in talks for nearly a year now with experts suggesting that the £15 billion pension scheme was a major stumbling block.
In an official communication on Friday evening, Tata Steel said it had signed documentation for a Regulated Apportionment Arrangement (RAA) with the BSPS trustee. This will offer more suitable outcomes for pensioners, employees and the business, it said. About 6,250 people are employed by Tata Steel in Wales, including 3,500 in Port Talbot.
The arrangement will segregate BSPS from Tata Steel UK and the pension scheme’s participating employers, which include certain subsidiaries of Tata Steel UK. The new defined benefit scheme gives a guaranteed income and will have lower future annual increases for retirees than BSPS, giving it “an improved funding position which would pose significantly less risk for Tata Steel UK,” the statement said.
BSPS will also
“The RAA is one important milestone in Tata Steel UK’s journey towards a sustainable and enduring future, with pension obligations, whose risk profile would be consistent with the underlying business,” said Tata Steel group executive director Koushik Chatterjee. “The net financial impact of the RAA including the payment of the agreed amount would be reflected in the Q2 FY18 financials for the company.”
Considering the continued challenges in the global steel industry as well as the uncertain global politico-economic environment, the RAA “presents the best possible structural outcome for the members of the British Steel Pension Scheme and for the Tata Steel UK business,” Chatterjee said. This follows an announcement on May16 that the key commercial terms of the RAA had been agreed in principle between the company and the pension scheme trustee. After the accord was signed, the pension regulator issued a clearance statement that marks the commencement of a 28-day period during which par- ties directly affected by the RAA may refer the decision to approve it before the Upper Tribunal of the UK court system. At the end of the 28-day period and in the absence of any referrals, it is expected the regulator will confirm its approval of the RAA, which will take effect after Tata Steel UK makes the payment of GBP 550 million. At the same time, 33% of the equity shares in Tata Steel UK will be issued to the BSPS trustee.
Fate of the Tatas’ British businesses, including the UK’s largest steelworks at Port Talbot in Wales, was thrown into uncertainty after Tata Steel said more than a year ago it planned to sell British assets following heavy losses. Apart from fall in steel business prospects, the pension scheme’s GBP15 billion liabilities remained a millstone around its neck. Without a deal on the pension scheme, Tata Steel UK had warned it could face insolvency due to the size of the pension fund’s deficit.
Reuters earlier cited Thyssenkrupp officials stating that it was still in talks with Tata Steel over a possible combination of both groups’ European steel businesses, adding it would not be rushed into any deal even after an outstanding agreement over Tata’s pension obligation might be reached. Tata Steel bought Corus (later Tata Steel Europe) in January 2007 for $12 billion.
In May 2013, it announced a $1.6billion (.`8,700 crore) goodwill impairment charge for loss of value of Tata Steel Europe and other overseas assets in Thailand and South Africa in wake of a slump in demand in major overseas markets, particularly Europe. According to its FY12 annual report, Tata Steel’s consolidated goodwill stood at .₹ 17,354 crore ($3.2 billion) and a lion’s share of that was on account of the $13-billion Corus acquisition.