Tata Steel UK Re­works Pen­sion Scheme, Reignites Deal Hopes

Merger pos­si­bil­ity with Thyssenkrupp rises post pact to sep­a­rate UK busi­ness from BSPS

The Economic Times - - Front Page - Our Bu­reau

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.

MERGER TALKS

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.

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