Tata Steel UK’s pension hurdle could be £2.5 billion: Report

Mumbai: The potential buyers of Tata Steel Ltd’s struggling UK steel business are likely to face a pension hurdle of £2.5 billion.

According to a report by British newspaper The Telegraph, citing unidentified people, the cost of buying out pension liabilities of Tata Steel’s UK business could be two to five times the current deficit of £485 million.

“While bidders are emerging for the business based around Port Talbot, which was put up for sale by its Indian parent last month, sources say retirement liabilities are seen as the largest single obstacle hampering a deal,” the report said.

However, The Telegraph report’s pension liability is much lower than what brokerages have estimated.

“These (UK operations) assets are unprofitable for a reason, labour costs are almost 8-10x that of Chinese steel mills, regulatory costs and energy costs are very high. Finally, there is a big pension liability of £13.9 billion to be taken care off,” according to a Macquarie Capital Securities Ltd report, dated 6 April, authored by senior analysts Sumangal Nevatia and Rakesh Arora.

On 30 March, Tata Steel said it will consider various portfolio restructuring options for its UK business, including a sale in part or whole.

Both the potential buyers who have so far been publicly identified—a management buyout led by Tata Steel veteran Stuart Wilkie and a plan from commodity tycoon Sanjeev Gupta’s Liberty House—have indicated they will need the UK government’s support to conclude a deal.

A third scheme led by Albion Steel Ltd is reported to be evaluating Tata’s specialist steel operations in the South Yorkshire operations.

The British government is willing to purchase as much as 25% of Tata Steel Ltd’s UK business and offer support worth hundreds of millions of pounds to potential buyers of the steel maker’s UK assets.

This month, Greybull Capital LLP agreed to pay a nominal £1 for Tata Steel’s entire long-products business in the UK and take over its assets and liabilities, saving around 4,400 of those jobs.