>>> GKN directors think pension deficit could be closer to GBP 400m than GBP 1.1

GKN directors think pension deficit could be closer to GBP 400m than GBP 1.1bn - report
26 JAN 2018
GKN [LON:GKN] directors believe the FTSE-100 engineering company’s pension deficit could be closer to GBP 400m (EUR 456m) than the previously suggested figure of GBP 1.1bn, The Times reported. The newspaper cited comments attributed to GKN’s finance director Jos Sclater at a meeting with investors on Tuesday.
GKN is currently the subject of a GBP 7.4bn hostile takeover bid from rival engineering group Melrose [LON:MRO], and GKN’s pension deficit has been mentioned in previous reports as a potentially complicating factor for the bidder.
It is understood that Sclater argued that GKN pension scheme trustees’ claim that the pension deficit is GBP 1.1bn was calculated on the basis of gilt yields remaining unchanged, the item said. Gilt yields are a measure of income from government bonds, a typical investment for pension funds.
GKN board members have in private been saying that they anticipate rising gilt yields due to forecasts that interest rates will rise, the article continued. Sclater is believed to have predicted that gilt yields would rise by 1.75% if there was no uncertainty as to GKN’s future ownership, which would reduce the deficit to GBP 400m, according to the report.
As previously reported, GKN Group Pension Scheme’s trustee said on 16 January that the schemes had an aggregate deficit on a gilts flat basis of GBP 1.1bn and an aggregate deficit on a solvency basis of GBP 1.9bn.
The pension trustees warned last week that the deficit should be a priority if GKN is acquired or broken up.
Separately, the report said Sclater’s comment raises the question of GKN to trustees of the company’s two pension schemes, both of which are chaired by former GKN executives.
GKN’s former general counsel Rufus Ogilvie Smals chairs one of the schemes, the item said, adding that Smals has acted as a consultant to GKN on antitrust and compliance matters. The other GKN pension fund is chaired by Michael Fairbrother, who was formerly GKN’s financial controller, according to the newspaper. The item noted a trend for chairmen of large pension funds to be independent of the fund’s sponsoring company.
Sclater is believed to have mentioned a “strong relationship” with the trustees, the article continued.
The report went on to quote a GKN spokesperson who said the group does not recognise the numbers cited from Sclater’s meeting with investors.
The trustee chairmen did not respond when asked for comment, the article added.
GKN’s share price closed 1.7p down at 432.9p in London on Thursday, 25 January, giving the company a market capitalisation of GBP 7.43bn.