CASH WOE

Mumbai, Aug. 9: Tata Motors, in talks with the UK government for loan guarantees to support Jaguar Land Rover (JLR), has received a financial blow from the pension liabilities of JLR. The Tatas had acquired JLR a year ago.

Tata Motors has accounted for actuarial losses (net) of Rs 1,457.21 crore on a defined pension scheme for Jaguar Cars Ltd and Land Rover UK in the 2008-09 fiscal. The losses have been charged in the reserves and surplus of the company’s balance sheet for the last fiscal. “The actuarial losses significantly represent short-term valuation impact on the plan assets,” Tata Motors said in its balance sheet.

Tata Motors may not be alone — some large Indian companies that have made overseas acquisitions may also have to account for losses on defined pension schemes.

Several foreign companies offer defined pension schemes, in which employers offer a certain level of pension payments even if the assets that the pension fund is invested in do not fare well.

Indian companies that bought these overseas firms promised to make good the losses suffered in the defined pension funds as part of the buyout agreements.

Last year, several pension funds were expected to be in the red as they had invested in equities which lost value after the global markets crashed. At that point, it was difficult to estimate the losses that the Indian companies would have to account for, as actuaries calculate this number at a predetermined time in a financial year.

Fund deficit

Pension funds suffer deficits when the value of the assets they have invested in is lower than the payouts to the employees.

Last year, pension fund deficits were widely discussed in the US and the UK, when the shortfalls rose because of declining equity values, and companies faced a cash crunch as a result of recession.

According to the Tata Motors’ balance sheet, on June 2, 2008, the company acquired the Jaguar Land Rover businesses from Ford Motor for $2.5 billion. Of this, Ford contributed around $600 million to the JLR pension plans. The acquisition includes the ownership of three manufacturing plants, two advanced design centres in the UK, a worldwide sales network, intellectual property rights, and brands and trade marks.