Tata Steel pensions deal paves the way to merger

Steelworkers

Clearing a major hurdle in the potential Tata Steel-Thyssenkrupp tie-up for their European steel businesses, Tata Steel said on Friday that it has signed a regulated apportionment agreement (RAA) with the Trustees of British Steel Pension Scheme (BSPS) to separate the pension scheme from its United Kingdom business.

Britain's Pensions Regulator revealed Friday its initial backing to proposals by industrial giant Tata Steel UK Ltd.to pump £550 million ($713 million) into a company savings plan to ditch the scheme and avoid bankruptcy.

As part of the arrangement, Tata Steel UK will make a payment of £550 million to the British Steel Pension Scheme (BSPS), while 33 per cent of Tata Steel UK's equity will be issued to the scheme's trustee. The Pension Protection Fund has also issued confirmation of non-objection to the RAA on Friday.

The pact would be effective after Tata Steel pays 550 million pounds (S$972.5 million) and a 33 per cent equity stake in the United Kingdom operations to the trustee, the steelmaker said in a separate statement. Should there be no referrals to the United Kingdom court system in the next 28 days, TPR is expected to confirm its approval, subject to TSUK making a £550 million payment to the scheme.

Tata Steel today announced clinching of a new agreement that will detach the 15-billion-pound British Steel Pension Scheme (BSPS) from its United Kingdom business. "In order to continue to trade, TSUK required ongoing funding from the Tata Steel Group, which it was not willing to provide until funding challenges for the existing scheme were resolved".

"The modified benefits offered by New BSPS are expected to be better than PPF compensation for the vast majority of current pensioners and for many other members". "What this delivers is a more realistic promise to scheme members, without the destruction of value that comes with the current PPF route".


"If stressed pension funds were allowed to restructure in a more transparent way, a pension fund equivalent of Chapter 11, risk could be better shared between the company, the members and the PPF", Rosenberg said.

It said: "For over a year our members have feared for their security in retirement, and this announcement helps to bring that uncertainty to an end".

Koushik Chatterjee, Tata Steel's Group Executive Director, said the RAA process has been a long and detailed one, and thanked everyone involved, including the United Kingdom and Welsh governments, for their constructive engagement through the process.

All members of the British Steel Pension Scheme will now have a choice of joining the new scheme or come under the Pension Protection Fund (PPF), a pensions lifeboat.

Chatterjee added: "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". "The net financial impact of the RAA including the payment of the agreed amount would be reflected in the Q2 FY'18 financials for the company", said he.

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