Tata Steel Inches Closer to Europe JV as Pension Woes Set to End

(Bloomberg) -- Tata Steel Ltd. and the trustee of the British Steel Pension Scheme have agreed to terms to separate the plan from the Indian steelmaker’s U.K. unit, eliminating the last hurdle for it to proceed with a strategy to place European operations into a joint venture.

The Mumbai-based company has signed the regulated apportionment arrangement with the pension trustee and the terms are expected to take effect in a month’s time, the trustee said in a statement Friday. The pact would be effective after Tata Steel pays 550 million pounds ($715 million) and a 33 percent equity stake in the U.K. operations to the trustee, the steelmaker said in a separate statement.

Over the past year, the Indian company has sold off some of its unprofitable assets in the U.K. as it sought to cut losses amid an industry slowdown and glut in supply. It started discussions with firms including Thyssenkrupp AG for a possible joint venture in Europe more than a year ago, even as Tata promised labor unions it would run the company’s Port Talbot unit for at least five years. Thyssenkrupp had identified the pension liabilities as a major stumbling block to any possible deal and is said to have a plan B in place as talks drag on.

The separation of the pension scheme from Tata Steel is part of a proposal to secure the future of the remaining U.K. business as, without separation, the British operations would probably become insolvent, the trustee said.

Best Possible

“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 U.K. business,” Koushik Chatterjee, group executive director, said in the statement. “The net financial impact of the RAA, including the payment of the agreed amount, would be reflected in the 2Q FY18 financials for the company.”

Tata Steel has also reached an agreement for the sponsorship of a proposed new pension plan, the company said. Earlier this week, the company reported a surge in profit on rising prices, higher output and improved performance at its European units.

Thyssenkrupp shares briefly erased losses on Friday, rising as much as 0.8 percent after the announcement, before trading lower again.