On the go: Trustees of BT’s colossal £50bn defined benefit pension scheme faced a number of important questions after rumours emerged that the telecoms giant was looking to sell its most profitable division.
As reported in the Financial Times on Thursday, talks were underway with potential buyers as BT looked to sell a stake in Openreach – which maintains the UK’s national telecommunications grid – that could amount to £20bn.
BT’s share value has fallen 80 per cent in the last five years, and besides its £50bn pension liabilities the group is saddled with a net debt of £18bn.
News of the potential sale came amid mounting concern about BT’s ability to complete its proposed £12bn roll-out of fibre optic broadband.
BT last week released its annual results for the year ending March 31, pointing out that uncertainty resulting from the Covid-19 crisis had impacted its performance, and would likely continue to do so.
The report announced an increase in net debt “driven by” £1.3bn in contributions to its pension scheme, and warned that “prolonged economic downturn could materially increase our pension deficit and associated contributions”.
It likewise cautioned that the BT Pension Scheme could become an even greater financial burden should returns on investment be weak, if BT’s financial strength deteriorates further, and due to “recent market movements following the Covid-19 outbreak”.
Precisely how the proposed sale of Openreach impacts BT’s pension schemes and the considerations of their trustees depends on a number of as yet unanswered questions, according to Richard Farr, managing director of Lincoln Pensions.
But trustees will need to be alert to the covenant impact of the sale of such a large and profitable division. “The Pensions Regulator will no doubt be applying its new principles and draft code to this significant covenant changing transaction,” Mr Farr said, adding that the transaction would be “an important test case” for the watchdog.
A key question is how BT would use the funds generated by the sale, he said, predicting that trustees will want to be treated “pari passu” with other stakeholders.
