Tata Steel (BSE: TATASTEEL.BO – news) is within days of clinching a deal to detach its £15bn British Steel Pension Scheme (BSPS) – a move that could pave the way for it to merge its European operations with a German rival.
Sky News has learnt that the Indian steelmaker is aiming to announce on Friday afternoon that it has formally struck a deal called a Regulated Apportionment Agreement (RAA) with UK pensions bodies and the company’s pension trustees.
Under the terms of the RAA, a mechanism allowing a financially troubled employer to detach itself from defined benefit pension scheme liabilities, Tata Steel will inject £550m into the now-closed BSPS, which has roughly 130,000 members.
It will also hand the scheme a one-third stake in the ongoing UK operations, which include the giant Port Talbot steelworks in Wales.
Sources close to the talks, which produced an outline agreement in May, confirmed that The Pensions Regulator (TPR), Pension Protection Fund (PPF (Shenzhen: 300258.SZ – news) ) and BSPS trustees were all preparing to make statements acknowledging the Tata Steel agreement.
The stakeholders were hopeful of announcing a deal on Friday, although the timing remained subject to change, insiders said.
After announcing quarterly results in India earlier this week, Koushik Chatterjee, a Tata Steel director, said the company was hopeful of reaching a final agreement with regulators and trustees “shortly”.
The signing of the RAA is expected to trigger the placing of the BSPS into the custody of the PPF, the industry lifeboat for members of defined benefit scheme.
Members of the BSPS will then have the option of transferring to a new Tata-sponsored scheme, under which they would see lower future increases to their pensions than would otherwise have been the case.
If they choose not to transfer, they would remain with the PPF.
A source pointed out that for a small minority of BSPS members, staying in the PPF may offer a better financial outcome than transferring to BSPS2, as the new scheme has been dubbed.
RAAs can be controversial because they are supposed to be approved by industry regulator only when “the alternative would have to be that the employer would become insolvent”, according to guidance published on the watchdog’s website.
The crisis at Britain’s biggest steel producer erupted last year, when Tata Steel put its entire UK operations up for sale amid a deteriorating industry environment.
In February, the company’s British employees voted to accept proposals to close the existing pension scheme to new contributions, in exchange for greater certainty about the future of its 8,500-strong workforce.
Tata Steel said more than a year ago that it would seek to merge its European operations with the steel division of Germany’s Thyssenkrupp (IOB: 0O1C.IL – news) .
Doubts have arisen in recent weeks about whether the merger will proceed, however, even with a resolution of the pension issues.
Sources also pointed out that the signing of the RAA would not be the concluding stage of negotiations about the future of the steelworkers’ pensions, with a 28-day appeal period during which there can be a legal challenge to such deals.
In a statement issued to Sky News, a Tata Steel spokesman said: “After prolonged and intense discussions and negotiations with the BSPS, TPR and the PPF, the key commercial terms of an RAA have been agreed in principle between Tata Steel UK and the BSPS trustee.
“This was announced on 16 May 2017.
“The RAA is subject to formal agreement by TPR and non-objection by the PPF, and the formal agreement of the individual entities who would be party to the RAA.
“These parties are in positive discussions and we are hopeful of reaching a final agreement shortly.”
The Pensions Regulator, PPF and BSPS trustees all declined to comment.