SHUAA, DBG resolve conflict

The two Middle Eastern financial institutions have settled a dispute relating to the conversion of bonds into stock, giving Dubai Banking Group a 48% stake in SHUAA.

SHUAA Capital, the parent company of private equity firm SHUAA Partners, and Dubai Banking Group (DBG) have agreed to new terms for the conversion of SHUAA bonds held by DBG, bringing an end to a stand-off that started in October 2008.

The two firms were involved in a dispute pertaining to the conversion notes issued by SHUAA to DBG in October 2007, with SHUAA claiming that the conversion of notes into shares was mandatory following the lapsing of the maturity date.

On 31 October 2007, SHUAA Capital issued convertible notes with a face value of AED1.5 billion ($409 million; €295 million) to DBG, maturing on 31 October 2008. At the time of maturity, SHUAA wanted to convert the notes and issue shares, but DBG objected to the conversion.

The continuation of the dispute resulted in SHUAA unilaterally issuing 250 million shares to DBG earlier this month, making DBG a 32 percent shareholder in SHUAA. This share offer was rejected by DBG which requested the Dubai Financial Market to disallow the registration of any SHUAA shares in its name without its consent.

The two firms have now agreed to terms whereby DBG will convert the AED1.5 billion convertible bonds into 515 million shares, giving it a 48.4 per cent stake of SHUAA Capital’s share capital post-conversion, SHUAA Capital said in a statement.

The new agreement will result in an increase in SHUAA’s paid up and issued capital by AED515 million to AED1,065 million. It represents a conversion price of AED2.91 per share, a premium of 127% over AED1.28, the closing share price of SHUAA on 24 June.

“We believe that this agreement was the best course of action under the circumstances… Despite our differences, we both recognised the need to resolve them amicably for the sake of all our shareholders,” Majid Al Ghurair, chairman of SHUAA Capital, said in a statement.

SHUAA Capital’s share price slumped by more than 85 percent in 2008. In April, SHUAA shareholders where asked to vote on the continuation or dissolution of the company due to the loss of more than half of SHUAA’s legal capital, a predicament SHUAA found itself in following DBG’s refusal to accept the note’s conversion to shares at the time of maturity in October 2008.

DBG is a subsidiary of the Dubai Group, which itself is the financial services arm of Dubai Holding, the investment company of Sheikh Mohammed bin Rashid al-Maktoum, the ruler of Dubai.