UK - The industry pension funds for coal and mining workers in the UK are set to buy a controlling stake in UK Coal’s property company, after the employer outlined details of a restructuring to relieve the burden of a £430m (€545m) pension deficit.
Issuing its half-yearly results, UK Coal said it had agreed a number of proposals to reduce deficits in both the Industry-Wide Mineworkers’ Pension Scheme (IWMPS) and the Industry-Wide Coal Staff Superannuation Scheme (IWCSSS), as it currently prevented its shareholders from receiving any return on its holdings.
“We have made significant progress towards a restructuring of the business,” the company said, adding that the “highly complex” process was proceeding thanks to the “goodwill” of stakeholders including its schemes, the Pensions Regulator, as well as its banking debtors, whom it owes more than £100m.
“A non-binding heads of terms agreement has been reached with the pension trustees, and an agreement in principle with the generators, which would result in a combined [circa] £90m of support to UK Coal over the period to the end of 2015 once the proposed restructuring is implemented,” the company said.
According to the agreement, the mining business would be left with an “affordable” repayment schedule for the pension deficit, with £30m a year earmarked for deficit reduction payments from 2014 onwards - with any prior payments deferred, while any cash held by the new entity above £50m also contributed towards the payments from that date.
“As part of the proposed plan to address the deficit, it is intended that the pension trustees will also invest £30m in the property business to enable the release of the latent undeveloped value in the property portfolio,” the report added.
“In exchange, the pension trustees will receive a direct stake of 75.1% in that business, with existing shareholders being entitled to the benefit of the remaining 24.9%.”
The minority stake not held by the schemes would be placed in a holding company not liable to the deficit, while the first £5m in shareholder dividends created by the company would automatically go to the schemes.
While the proposals have not received final regulatory approval from the Pensions Regulator, UK Coal said no major objections to the venture had been raised and that the issues in need of addressing could be resolved.
However, it warned that if the restructuring were not to go ahead, the company would remain exposed to “significant risk” related to its employer covenant, assumed when state-owned British Coal was privatised in 1994.