DBG initiates legal proceedings against Shuaa Capital

It was revealed by Dubai Banking Group (DBG) on Tuesday that in order to recover the capital it invested in a $409 million bond that Shuaa redeemed by issuing shares, it has initiated legal proceedings against Shuaa Capital.

However, the investment bank Shuaa Capital said that it does not accept the claim that any amounts are due to DBG since it has already exercised its contractual option to redeem the bonds by issuing 250 million new shares.

The DBG-Shuaa dispute has cut 35% off Shuaa's share price since 16th June, when Shuaa declared it was issuing shares to redeem the 1.5 billion dirham ($409 million) bond it issued to DBG in October 2007.

Since the original conversion ratio had envisaged a share price of 6 dirhams, several times the current share price, DBG wants its principal investment back. On Tuesday shares closed at 1.28 dirhams.

Since the two parties tried, yet failed, to reach a resolution, the conversion date of end-October 2008 was postponed.

Fadel Al Ali, DBG chairman, said in a statement: "Since it has become clear that a resolution is not possible at this time, we have no choice but to pursue litigation in order to redeem our original investment in the company and other amounts outstanding, including interest."

Via a statement, Majid Al Ghurair, chairman of Shuaa Capital, said: "This is not an unexpected development as DBG had earlier indicated its willingness to file such a claim."

It has been learnt that Dubai Financial Market would not register the newly issued shares in the name of Dubai Banking Group until it receives a joint letter from the two parties or an order from authorities.