GERMANY – Luxury car maker BMW is seriously considering removing up to €2.6bn in pension liabilities from its balance sheet and having them funded externally via a contractual trust arrangement (CTA), industry sources say.
The sources, who spoke on the condition of anonymity, told IPE that BMW had for some time been hearing pitches from financial service providers on the matter.
The sources added that while BMW had not yet set the CTA process in motion, it was very likely to soon. A spokesman for BMW in Munich declined to comment.
In setting up a CTA, a company typically commissions an asset-liability study on which funding issues and the CTA’s asset allocation are based. This is followed by selection of asset managers.
More than 20 of BMW’s peers on Germany’s blue-chip Dax index have already established CTAs for their pension liabilities. BMW, which owns UK car companies Mini and Rolls Royce, already has a €5.7bn external pension fund for those affiliates.
The embrace of CTAs by Dax companies is in large part due to international accounting standards (IAS). Since 2005, all capital-market oriented companies in Germany must report under IAS, which generally treats pension liabilities financed via on-balance sheet assets as unfunded.
Separately, other industry sources, who asked not to be named, said energy giant RWE was also considering creating a CTA for up to €12bn in pension liabilities. An RWE CTA would be the biggest ever for a German company.
But the sources said RWE was merely thinking about the move and had not taken any concrete action. According to them, a key problem is finding the liquidity to finance such a gigantic CTA.
The sources noted that RWE’s cash flow was, for example, constrained by a legal requirement to build reserves for nuclear power-related activities. In 2004, RWE set aside €9.7bn in reserves to deal with the disposal of nuclear waste and the dismantling of reactors to be shut down as part of Germany’s phase-out of the power source by 2020.
An RWE spokesman in Essen had no further comment except to say: “We are aware that many other Dax companies have created CTAs, and we are watching this market development closely.”
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