BusinessCompany NewsFRS17 forces firms to use bond and equity markets

FRS17 forces firms to use bond and equity markets

The huge pension deficits revealed by using controversial accounting standard FRS17 are set to encourage a new wave of corporate bond and rights issues.

Link: FRS17 blamed for economic stagnation

Analysts have predicted that UK companies will look increasingly to the bond and equity markets to raise extra cash, as a knock-on effect of diverting more cash to pay for pensions.

The forecast came as a new survey from consulting actuary Lane Clark & Peacock claimed the FTSE-100 would need to reach 6,000 by this time next year to clear an estimated £55bn pensions deficit brought about by the controversial accounting standard FRS17. The FTSE is currently around 4,100.

Crispin Southgate, European credit strategist at Merrill Lynch, said the sheer scale of deficits means that diverting extra cashflow to pension funds could have a significant effect.

‘We could see more bond issuance or rights issues as an indirect effect. If you’re diverting more cash flow to your pension scheme, you have less cash to finance investment and you’re more likely to use the capital markets,’ said Southgate.

Rolls Royce has become the latest UK company to report a major improvement in cashflow, only for the money to be soaked up by its FRS17 pensions deficit.

The company said it would use some of the £247m increased cash flow to contribute up to £50m a year more to the group pension fund.

The latest Lane Clark & Peacock survey named BAE Systems, British Airways, BT Group, ICI, Invensys, Rolls-Royce and Royal SunAlliance as firms particularly exposed to falls in equities because of FRS17 troubles.

Email James_Hester@vnu.co.uk.

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