Keele denies cash 'wheeze' costs

June 6, 2003

Keele University managers have defended a complex financial deal that union leaders claim will cost the institution £45 million.

The managers denied that they failed to take professional advice on the true value of the 30-year financial restructuring deal, which involves the lease of student halls to a specially created company, Owengate Keele plc.

But they have admitted that a £25 million halls refurbishment fund, paid for out of an upfront cash premium from Owengate, is in trouble and could end up costing the university more money.

The Association of University Teachers at Keele condemned Owengate as one of a "series of cunning wheezes" devised by managers in the 1990s to dig the university out of a financial hole.

The deal between the university and the private sector, in 1999, set up a company that would give the university a £65 million cash premium raised on the bond market in exchange for rental income from its student halls. The university would use the money to pay off debts, to set up the refurbishment fund and to invest in growth.

But the AUT said it calculated that forgoing rental income would leave the university with a net loss of about £45 million over the term of the deal. It claimed that a confidential paper on the merits of the deal presented to the university council double counted interest on the cash premium to make it look like good value.

This week, Keele managers were adamant that the details of the deal, as presented to the council, were "correct and appropriate". Pro vice-chancellor Tony Dugdale added: "We were not aware of any double counting."

But they admitted they were reviewing a fund set up to finance the refurbishment of student halls that had shrunk due to the depressed shares market.

Keele secretary and registrar Simon Morris said this would not affect the core business of the university. But he added: "The work we are doing at the moment is to rebalance the way the money is invested. It is possible the university may have to put some money into it. We are trying to find ways with our partners of not having to do that."

Mr Morris rejected AUT claims that the value of the Owengate deal was not independently checked. Insurers acting as underwriters put the university through "a huge amount of diligence", he said. The same insurers were also the final arbiters on future decisions about halls' rent rises, and would not allow rents to climb too quickly, he added.

But AUT leaders said they had yet to be convinced that the Owengate deal would not lead to more rationalisation on top of 34 redundancies already planned as the university shuts down half of its maths and American studies departments and a third of physics and chemistry to save £1.5 million by the end of the year.

Keele AUT president Peter Fletcher said: "We have presented our calculations on Owengate to the university management, but so far we have had no rebuttal and no hard figures back."

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