Middle East investment bank SHUAA Capital, which has a number of private equity and real estate funds, is involved in a dispute with Dubai Banking Group (DBG) over the convertibility of notes DBG holds in SHUAA. SHUAA claims the conversion of notes into shares is mandatory following the lapsing of the maturity date.
On 31 October 2007, SHUAA Capital issued an AED1.5 billion ($409 million; €295 million) in convertible notes 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.
Following that, the two parties signed a memo of understanding on 2 November 2008. They agreed to permit SHUAA to seek shareholder approval for proposed compromise measures, SHUAA said in a statement.
A resolution could still not be reached and SHUAA’s board “unanimously concluded that no agreement could be reached on terms that they could recommend to shareholders”. As such, SHUAA issued 250 million shares to DBG, making DBG a 32 percent shareholder in SHUAA.
In a 15 June statement to the Dubai Financial Market, where its shares are listed, SHUAA said: “We wish to inform you that we have given notice to DBG of our intention to implement our election to convert the notes in their entirety into 250 million fully paid shares of the company.”
However, DBG rejected the share offer and requested the Dubai Financial Market not to allow for the registration of any SHUAA shares in its name without its consent.
In a statement to the exchange signed by Ahmad Bin Byat, CEO of Dubai Holding, DBG said: “Following numerous attempts at achieving a reasonable settlement with regard to the note with SHUAA Capital, Dubai Banking Group, on 15 June, elected not to convert the note but rather to redeem the note at its principal amount in accordance with the note and applicable laws.”
In addition, DBG has asked SHUAA Capital to pay back the principal amount invested in the company together with accrued interest.
Dubai Financial Market said in a statement that it will not register the SHUAA shares in the name of DBG “until we have received a letter from Shuaa Capital and Dubai Banking Group jointly or an order from the concerned authorities requesting us to have the shares registered in the name of Dubai Banking Group”.
Earlier this year, SHUAA Capital faced potential dissolution after seeing its share price slump by more than 85 percent in 2008. In April, at an Extraordinary General Assembly, 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.
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 rule of Dubai.