Fears of D1.5bn penalty hits Shuaa shares

Shuaa Capital, the investment bank embroiled in a public row over a Dh1.5 billion (US$408.6m) convertible bond, called on the market regulator Sunday to avoid pre-judging its dispute with the Dubai Banking Group (DBG), as the pair moved closer to a legal confrontation. The statement sent Shuaa's shares down by 9.8 per cent in Dubai yesterday. "I think investors overreacted a bit. But they clearly fear that the bank may have to pay back the Dh1.5bn to DBG. Should Shuaa have to pay, it would really hurt them," said Shawkat Raslan, the head of sales at Prime Emirates, the brokerage owned by Prime Holding of Egypt. In a letter addressed to the Emirates Securities and Commodities Authority (ESCA), Shuaa said the questions over the bond "required very careful conside­ration and must ultimately be addressed as matters of law and public policy". ESCA posted the letter on the website of the Dubai Financial Market Sunday. The row between Shuaa and the DBG, a subsidiary of Dubai Holding, has shaken the UAE's capital markets. The DBG wants Shuaa to pay the Dh1.5bn face value of the bond issued in 2007 instead of converting it into Shuaa shares. Since the bond was issued, Shuaa's shares have lost about two thirds of their value and accepting the shares would mean a paper loss of more than Dh1bn for the DBG. Shuaa insist the bond's conversion is mandatory, a claim that is disputed by the DBG. Last week, ESCA was forced to intervene in the dispute after investors were left confused by contradictory statements from the two parties. Shuaa blamed the DBG for allegedly opportunistically trying to extricate itself from a contract that did not work in its favour. Convertible bonds typically come with the option, and sometimes the obligation, for the buyer to accept shares instead of cash when they reach maturity. Last week, Shuaa asked the stock exchange to issue the 250 million shares, which would give the DBG a 32 per cent stake in the bank. But the DBG said it would not accept the shares. The DFM said it would not register the shares unless both parties agreed. uharnischfeger@thenational.ae