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 assets, Henkel says it would use €1bn in expected proceeds from a hybrid bond sale. Henkel says 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, says 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 adds.
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.

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