Steel works operated by Tata Steel in the U.K. (Photographer: Chris Ratcliffe/Bloomberg)

Tata Steel U.K. Clears Pension Fund Hurdle, Inches Closer To Thyssenkrup JV

Tata Steel Ltd.’s U.K. unit has completed the separation of the British Steel Pension Scheme after approval from the pensions regulator, setting aside a major hurdle in its plan to combine the European operations with Germany’s Thyssenkrupp AG.

In keeping with an earlier proposed agreement, Tata Steel U.K. has paid 550 million pounds to the steel pension fund, along with a 33 percent stake in the company, it said in a media statement. It has also agreed to sponsor a new proposed pension scheme, subject to certain conditions, and has invited all members to transfer to the new scheme which will have lower future annual increases for pensioners.

The pension fund was a financial drag for the U.K. unit and a major challenge for Tata Steel as it sought to place its European operations into a joint venture in an attempt to trim losses. Thyssenkrupp chief Heinrich Heisinger had identified the pension liabilities as a major stumbling block to the deal.

The Tata Group company has been eyeing an exit from the U.K. since 2016 due to an oversupply of steel, cheap imports and high costs. It has been actively divesting non-profitable assets to pare its debt, which stood at Rs 72,367 crore at the end of March.

U.K.’s biggest steel employer’s decision to exit the pension fund had put the fate of over 11,000 employees in uncertainty. Three of Britain’s major worker unions, Community, Unite and GMB, staged 'Save Our Steel!' rallies demanding stronger government strategy to support the steel industry.

Shares of Thyssenkrupp jumped as much as 3.6 percent following Tata Steel's announcement. Thyssenkrupp is said to decide on the merger of its steel unit with Tata Steel U.K. at a supervisory board meeting on September 23 or 24, Bloomberg reported, citing Germany's Manager Magazine.

Tata Steel shares in India closed 0.88 percent higher, ahead of the announcement, compared to the benchmark BSE Sensex that rose 0.6 percent. Its depository receipts on the London Stock Exchange were trading 0.5 percent higher.