BRUSSELS - Some huge U.S. money managers could be hurt if Belgium sells its 51% stake in telecommunications group Belgacom SA.
That's because the government might take over the company's underfunded pension plan in advance of an initial public offering of Belgacom stock. If that happens, the Belgacom pension fund's €3.3 billion ($3.8 billion) in assets are likely to be shifted to Belgian government bonds.
As a result, the Belgacom pension fund's equity and high-yield bond mandates, largely managed by units of U.S. firms, could disappear. As of Dec. 31, the fund had 44.9% in equities, 52.4% in bonds and 2.7% in cash, according to its annual report. No information was available on how much was allocated to high-yield bonds.
The fund's money managers are: Barclays Global Investors, London, for stock, bonds and currency overlay; State Street Global Advisors, Boston, stocks and bonds; Goldman Sachs Asset Management, London, stocks and bonds; Putnam Investments Ltd., London, stocks; Wellington Management International LLP, London, stocks; Capital International Ltd., London, emerging markets; Lombard Odier Darier Hensch Asset Management Ltd., London, bonds; Fortis Investment Management, Brussels, stocks and bonds; BlackRock Inc., Edinburgh, bonds; and LaSalle Investment Management, London, equity real estate.
4 just hired
Last month, Belgacom's pension plan hired four money managers for new global equity mandates of undisclosed amounts: INVESCO Benelux SA, Brussels; MFS International Ltd., London; AllianceBernstein Capital Management, New York; and Morgan Stanley Investment Management, London. These, too, are U.S. firms.
The newly elected Belgian government has not made a firm decision to sell its 51% stake in Belgacom, but Public Enterprise Minister Johan Vande Lanotte has been in talks with Belgacom executives and is considering the matter, according to a spokeswoman.
The move toward government bonds would help reduce Belgium's overall government borrowing level, which is higher than it should be under the Maastricht Stability Pact, sources said. Or, it could be used to boost the newly launched Silver Fund, a pension reserve fund that is earmarked for future state pension liabilities and wholly invested in bonds, said local consultants and sources close to the government.
Analysts expect an IPO to generate between €9 billion and €10 billion if the company's €1.5 billion pension fund is excluded.
According to its latest annual report, the Belgacom pension plan has a projected deficit of €1.5 billion. Any funding deficit would have to be made good by Belgacom if the Belgian government agreed to take control of the pension plan, said a source close to the government.
The Belgacom pension fund is the largest in Belgium and has been a bellwether for the nation's pension funds, given its complete reliance on external managers and its early adoption of a U.S.-style core-satellite manager structure.
Belgacom was partly privatized in 1995, when an international consortium of telecommunications companies bought 49% of the company. Analysts say the Belgian government would get a better price for its 51% stake in the company if the pension liabilities were taken off of the company's balance sheet.
Although the pension plan is around 75% funded and Belgacom itself carries little debt, the pension deficit may depress the value of the company, said a London-based analyst who asked not to be named.
The Belgacom pension plan's assets and liabilities include state pension benefits for those employed by the company when it was state-owned.
It is the assets and liabilities earmarked to cover the state that would most likely be taken over by the government, said a source close to the government. But these dwarf the assets and liabilities accrued so far by Belgacom's new corporate plan, he added.
"The Belgian government has agreed to negotiate with Belgacom the possible transfer of the pension fund for civil servants," said Belgacom spokesman Jan Margot. Neither he nor executives of the pension plan or the company itself would comment further.
A decision on whether to privatize Belgacom is likely next month.
No firm indication
Marko van Bergen, BGI's Brussels-based head of institutional marketing for the region, said pension plan executives had given him no firm indication as to what would happen to the pension plan.
Other money managers said there was little they would do except hope to be awarded contracts to run the assets under government control or, at the very least, retain mandates running Belgacom's corporate pension obligations.
"But this is a client which we have to flag as being at risk for reasons beyond our control," said a senior executive for one of the managers, who asked not to be named.