GERMANY - Energy giant RWE has created an external fund known as a contractual trust arrangement (CTA) to finance €8bn worth of pension liabilities - one of the biggest ever on record.
RWE chief executive Harry Roels announced the CTA on the margins of a telephone call with analysts and investors this week dealing with the firm's sale of Thames Water.
A spokesman confirmed the creation of the CTA but added that RWE was also planning on creating a German Pensionsfonds, the German equivalent to the Anglo-Saxon pension fund. "Beyond that I have no further comment," he said.
Last January, IPE reported that RWE was considering creating a CTA for €12bn in pension liabilities - the total on its balance sheet.
Even in financing €8bn, RWE's fund is the biggest since that of technology giant Siemens. In 2000, Siemens created a CTA, known as Siemens Pensions Trust, to finance €10bn worth of liabilities.
But as IPE reported last month, the CTA was replaced by a Pensionsfonds. The move was in part motivated by the fact that Pensionsfonds, unlike CTAs, enable German multi-nationals like Siemens and RWE to create pan-European schemes.
Including RWE, at least 20 firms traded on Germany's blue-chip Dax equity index have created CTAs for their pension liabilities in the past few years. The boom has been driven in large part by international accounting standards which nearly all listed German firms have adopted.
Under IAS, CTAs and Pensionsfonds are considered an ideal way of financing pension liabilities while book reserve-funded schemes - the traditional method for German firms - are considered to be unfunded. As a result, rating agencies have rewarded listed German firms with CTAs with better credit ratings.
Separately, IPE has learned that E.ON, RWE's chief German rival, has nearly completed the funding of its CTA, which finances €5.4bn worth of liabilities.
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