Pearl Plans Capital Raise, London IPO

LONDON (Reuters) – Indebted insurer Pearl Group said it plans to raise 500 million pounds ($734 million) in new equity but warned debt holders they should not assume the funds will be used to restart deferred payments.

Pearl, owned by entrepreneur Hugh Osmond’s Sun Capital and private equity firm TDR Capital, said on Thursday it was in advanced talks to raise the new equity and to restructure its capital.

After that, the group would float on the London Stock Exchange, it said, becoming a rare candidate for an IPO.

Pearl said it may then use the money “to pursue further acquisition opportunities in due course” — a move that could put Osmond in competition with an old foe.

Pearl, which acquired rival Resolution in 2007 for about 5 billion pounds to create one of Britain’s largest life insurers, is expected to seek an overall market capitalisation of around 2 billion pounds after floating, a market source said.

“This is not a good time to be talking about IPOs with valuations so low in the insurance sector,” said analyst Eamonn Flanagan of Shore Capital.

“Pearl has some serious issues at the moment. The market should be focusing on its debt.”

On the face of it, Pearl’s plans to raise new capital could allow it to acquire a series of so-called zombie funds, life insurance policies that are not being sold to new clients, making cash from economies of scale.

But bankers said it is unlikely that Pearl will compete as heavily in this market in the future because there are fewer zombie funds left to be acquired.

DEBT RULES

The group last month deferred making a 33 million pound interest payment on some of its bonds, saying it was prudent to defer payment in the current market environment, despite having sufficient resources to pay the coupon.

The plans do not mean it will return to paying coupons on its bonds and that they would “not necessarily improve the financial position of Pearl Group Holdings”, it said.

Options being discussed with the banking syndicate included a debt for equity swap, said a person familiar with the situation who requested anonymity.

“That is not a bad idea. The banks would end up with equity that might give them some upside if the IPO strategy is successful,”the person said.

Pearl’s pursuit of Resolution was one of the most dramatic takeovers of 2007, pitting Osmond against his old arch-rival Clive Cowdery, the founder of Resolution Plc.

After leaving Resolution when Osmond took over, Cowdery formed a restructuring company that has said it wants to play a part in the consolidation of these areas.

Osmond’s plans could set him on a collision course with Cowdery if Osmond targets the UK life insurance and asset management sectors, where some of Cowdery’s main acquisition interests lie.

An ongoing investigation by the FSA means Cowdery is currently unable to complete deals, however.

Cowdery made an estimated 150 million pounds from the sale of Resolution to his old sparring partner after he used 500,000 pounds of his own funds to turn the business into a FTSE 100 company in the space of a few years.

A spokesman for Resolution said it was not concerned about potential competition from Pearl.

By Victoria Howley and Victoria Bryan

(Editing by Andrew Callus)