A group of the City’s leading fund managers are threatening to veto the flotation of Pearl Group, Hugh Osmond’s closed life funds investment vehicle, in a row over their treatment as bond investors.

The holders of £500 million of Pearl Group debt securities said that they had growing concerns about how the listing would affect their status as creditors to the group, which has total debts of £2.9 billion.

A committee of creditors, including UK and US investors, said that it had called on Pearl for clarity but had so far received no response.

The committee is led by eight of the City’s most powerful institutional investors, who would be expected to subscribe to shares in Pearl’s flotation, scheduled for later this year.

But the bondholders, who are being advised by the law firm Bingham McCutchen, issued a defiant statement yesterday.

They said they were concerned about the effect that a series of complex restructurings at Pearl had had on their rights. They also raised concerns about how they would be affected once a listed Pearl began to pay dividends to its shareholders.

“In light of its concerns, the noteholder group members consider that they would be unable to support or invest in any relisting that Pearl Group may launch,” they said.

The group said that Pearl had already missed an interest payment due on the debt and said it was worried about creditors’ position in the repayment queue in the event that the company was to default on its debt.

The threat marks a potential setback for Pearl, which earlier this week said it was seeking a listing on the London Stock Exchange “as soon as practicable”.

Pearl has agreed a deal to be taken over by Liberty Acquisitions, a special purpose vehicle that will inject about £510 million of capital.

The group, which was labouring under a £3.4 billion debt mountain in the wake of its acquisition of Resolution, a rival, also agreed a debt-for-equity swap that gave its bank lenders a 10.5 per cent stake.

Mr Osmond and his financial backers have had their holding diluted to 29.5 per cent.

Pearl said that it was for individual investors to decide whether to take part in a listing. A spokesman added: “We have been in continuing dialogue with the bondholders and remain so. None of their rights have been affected.”

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