GERMANY – Consumer chemicals firm Henkel plans to create a contractural trust arrangement (CTA) for €1bn in German pension liabilities, yet will fund the CTA not with existing liquidity but with the proceeds of a bond issuance.
Henkel is one of the few remaining German multinationals listed on the Dax-30 index which have decided to finance their pension liabilities via an external fund instead of book reserves.
But unlike its peers, which have funded the CTA with existing liquidity, Henkel said it would use €1bn in expected proceeds from a hybrid bond sale.
Henkel said the bookrunners for the hybrid bond, which mixes debt with shareholder equity, were BNP Paribas, Deutsche Bank and UBS.
Lothar Steinebach, Henkel’s chief financial officer, said the creation of a CTA would help the firm better manage its risks associated with its pension liabilities and improve the transparency of its financial reporting.
“Employees and pensioners also should profit from better caretaking of their pension demands,” Steinebach added.
According to Henkel’s last annual report, its German pension liabilities total €1.48bn. The firm has another €232m in pension liabilities in the US and €99m elsewhere.
The return on assets earmarked for the German pension liabilities for 2004 was 5%, below a return of 7-8% for the US assets.
It is not clear whether Henkel will be hiring a consultant to advise on the construction of the CTA. The move typically involves the compilation of a new asset-liability study and, from that, a new strategic asset allocation.
A spokesman for Henkel said the firm’s own capital markets team handled much of the investing to meet pension obligations.
Henkel is just the fourth member of Germany’s Dax to set up a CTA since the early summer. Those before it include the engineering group MAN, energy giant E.ON and, last month, the chemical giant BASF.
For its CTA, which will fund €5.4bn in pension liabilities, E.ON is still considering whether to retain its German incumbent FERI or to hire Watson Wyatt.
MAN, meanwhile, has hired Rauser, a German consultancy, to help set up its CTA for €1.7bn in pension liabilities. Rauser was bought on September 1 by Towers Perrin.
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