The Great Debate UK

Labour hits the right nuclear button

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REUTERS– Neil Collins is a Reuters columnist. The opinions expressed are his own –

Here’s a novelty — an awkward process that this British government has actually got right. Labour has played a fine game of grandmother’s footsteps in its realization of the inevitability of new nuclear power stations, and this week has clinched the sale of two sites for them.

The auction process, pioneered by Labour with the sale of radio spectrum for mobile phones, has once again raised much more than most observers expected.

Germany’s RWE and Eon are now the proud owners of land at Wylfa (on Anglesey, an island off a remote corner of Wales) and Oldbury (Gloucester, England).

Don’t say aye, aye to 3i

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REUTERS– Neil Collins is a Reuters columnist. The opinions expressed are his own –

It’s hardly surprising that the shareholders in 3i, the listed private equity group, are deeply unhappy at the prospect of having to return 700 million pounds of the 1.75 billion pounds of capital they have received from the company in recent years.

Final salary pensions nearer death

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REUTERS

– Neil Collins is a Reuters columnist. The opinions expressed are his own –

LONDON, April 8 (Reuters) – Aon’s website says it covers the entire “life cycle” of the corporate pension scheme, embracing advice, implementation and ongoing delivery of schemes. It doesn’t say that Aon is now helping what might better be described as the death cycle of company pensions.
Britain’s system of defined benefit schemes, under which employees are promised a level of pension linked to their salary, is in its death throes, held under water by the increasingly onerous obligations imposed on companies by successive governments. What started out as an aspiration to look after retired employees has been progressively raised to a liability of the employer equivalent to a bank overdraft.
The obligation to recognise and service this liability is now life-threatening for many otherwise viable companies, including high-profile businesses like British Telecom. Final-salary schemes are being ditched wholesale, replaced by defined contribution plans where the employee takes the investment risk.
Now even these schemes are under threat. Aon, which specializes in “human capital consulting” has decided that its own human capital can get by on rather less. It’s cutting the contributions it makes to its scheme and inviting its employees to make up the difference.
Aon’s move is likely to be widely followed, but it is merely an opening shot in what promises to be a long war over pension entitlements. A report by Lord Turner, now the chairman of the Financial Services Authority, concluded that we needed a National Pensions Savings Scheme, known jokingly in some quarters by the inaccurate acronym “NatsPiSS”.
The UK government swallowed his recommendations whole, pausing only to change the name to “Personal Account”.
From 2012, every employee who does not opt out of a Personal Account will be forced to put 5 percent of his salary into the scheme, with the employer contributing a further 3 percent.
This is painful, especially for younger workers with more urgent claims on their post-tax income, like a mortgage or children. It’s also nothing like enough to provide a comfortable old age, even for a worker who contributes for 40 years. Paul Macro at consultants Watson Wyatt calculates that his retirement pot would buy a pension of about 16 percent of the salary it replaces.
Meanwhile, the sun is still shining in the public sector, where the UK state underwrites the colossal cost of providing near-universal final salary schemes, and leaves the liability off its books. It’s also high summer for British Members of Parliament, whose defined benefit pensions cost around 32 percent of their salaries – most of which is met by their employer, the taxpayer.
This pensions apartheid is as offensive as the real thing, and will cause widespread misery once Personal Accounts hit pay packets. Thus the destruction of what used to be one of the best pensions systems in the world continues.
(Editing by Richard Hubbard)
((E-mail neil.collins@thomsonreuters.com)) You can read some of Neil Collins’ recent columns at: http://blogs.reuters.com/great-debate/author/neilcollins/

Never mind oil, BP runs low on directors

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REUTERS

– Neil Collins is a Reuters columnist. The opinions expressed are his own –

LONDON, April 8 (Reuters) – BP has undergone a critical period of self-assessment over the last four years. The chairman, no less, says so in the oil company’s annual report.

Osmond’s plan no joke for Pearl bondholders

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REUTERS– Neil Collins is a Reuters columnist. The opinions expressed are his own –

By Neil Collins
LONDON, April 9 (Reuters) – Is Hugh Osmond having a laugh?
The answer is obviously yes, except that Osmond doesn’t do jokes, and if he can persuade the banks that have lent to his leveraged insurance vehicle, Pearl, with his reconstruction arithmetic, he’s the one who will end up with the biggest grin.
He’s talking of floating shares in the disparate collection of closed life assurance companies he put together only last year, because “the debt funded acquisition model that served Pearl and others so well in the past is no longer appropriate.”
It may have served him well, but the holders of a 500 million pound ($736.5 million) sterling eurobond, issued by a company that is now a Pearl subsidiary, are not laughing.
Rather, they are spitting tacks after Osmond said last month that he wasn’t going to pay the coupon on the bond, even though he had the money.
The price, already weak in anticipation of bad news, has collapsed to 5 pence in the pound bid, 10 pence offered.
The holders have formed themselves into an action group, and forced Pearl to agree to meet them next month.
Legally, they are on weak ground, since the deed allows payment to be deferred, but if Osmond is serious about flotation, their position looks much better.
The holders range across the usual spectrum of UK life offices and pension funds, who would be the natural buyers in the share issue.
There is more at stake here than the loss of 90% of the bond’s value. If Osmond can effectively turn this issue into a perpetual zero-coupon bond, plenty of others will try to do the same in this $100 billion market.
Where the bondholders’ lawyers look likely to fail, institutional pressure may well force better behaviour – assuming Osmond really is serious about coming back to market.
(Editing by Timothy Heritage)

A Punch on the nose for the bears

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REUTERS– Neil Collins is a Reuters columnist. The opinions expressed are his own –

LONDON, April 7 (Reuters) – One share in every five in Punch Taverns <PUB.L> has been lent by its owner to the short sellers, who over the last couple of years have made more than enough to cover the bar bills.
Yet in the last fortnight, the Punch price has got off the floor and hit back, doubling from 40p to 80p. Why?
Pubs have endured the perfect storm, as new health’n'safety rules have been piled on to a raised minimum wage and the smoking ban. Meanwhile, supermarkets have exploited a  relentless campaign against drink driving by making it cheaper to drink at home.
Every storm eventually abates, and this one may be easing. The professionals in the industry like Mitchells & Butler <MAB.L>, Marston’s <MARS.L> and JD Wetherspoon <JDW.L> are all making more optimistic noises.
The groups, which are essentially financial constructs that happen to sell beer, had been priced for bankruptcy, an outcome which now looks marginally less likely.
True, things still look pretty grim. Globe Pub Company, Robert Tchenguiz’s card in this game, is already in the hands of its bondholders following a technical default. Punch, the next weakest, is struggling to find the cash to repay its 224 pound ($334.2) million convertible due next year.
Its problem is that most of its pub estate is in three securitized vehicles that must generate threshold amounts of cash before they can pay anything up to the parent. Too little, and the cash is trapped; much too little, and the lenders take over the portfolio.
Punch is a debt mountain built on a sliver of equity; even after the doubling of the share price, its market capitalisation represents only 4 percent of the enterprise value of the business.
The shares are an option on the financial engineers at Punch finding a way to hang on long enough for the storm to pass.
They then have to work out how to compete with those companies that know about the business, which are now gaining market share from the engineers.
No wonder some brokers, such as Evolution Securities, are saying sell. The bears may yet swing the final Punch.
(Editing by Malcolm Davidson)

Greenbury’s Damascene conversion

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– Neil Collins is a Reuters columnist. The opinions expressed are his own –

REUTERSSir Richard Greenbury has had a Damascene conversion. The former boss of Marks & Spencer tells The Times that he’s now in favour of continental-style two-tier boards, contrary to his own report into corporate governance 14 years ago.

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