Dubai Banking Group (DBG) and Shuaa Capital settled a long-running bond dispute with DBG taking a 48.4 percent stake in the investment bank, Shuaa said on Thursday, in a move likely to ease investor concerns.

The deal, which follows months of negotiations and a threat by DBG to take Shuaa to court, will give DBG 515 million shares in Shuaa, more than twice the number of shares agreed to in the original convertible bond deal from 2007, Shuaa said.

The dispute had threatened to tarnish Dubai's image as a financial centre, pressured Shuaa shares down by over a third from a recent peak and triggered a cut in its credit ratings as the spectre of a drawn-out court battle with uncertain consequences for the bank weighed.

The settlement is likely to see Shuaa shares strongly supported as investor concern over the bank's ability to pay DBG in cash should lift.

The deal represents a conversion price of 2.91 dirhams ($0.793) per share or a premium of 127 percent to the closing share price of 1.28 dirhams on Wednesday, Shuaa said.

As a result, Shuaa’s issued and paid up capital will be increased by Dh515 million to Dh1,065 million, while the balance of Dh985 million will be credited to the premium account within equity. Total shareholder equity will remain unchanged at Dh2 billion.

 “We believe that this agreement was the best course of action under the circumstances and we worked swiftly to remove the uncertainty that followed the marked escalation over the past week,” said Majid Al Ghurair, chairman of Shuaa Capital.

“This was especially important in view of the nature of our business. Despite our differences, we both recognised the need to resolve them amicably for the sake of all our shareholders and our standing as a leading UAE company. We would like to take this opportunity to start a new page and welcome Dubai Banking Group as Shuaa's largest shareholder.” 

He added: “Both parties also wish to thank the Emirates Securities and Commodities Authority and its senior management for facilitating the dialogue that lead to the agreement today”.

DBG, owned by the ruler of Dubai, said it saw its new Shuaa stake as a long-term, strategic investment.

Fadel Al Ali, chairman of Dubai Banking Group, said: “We see our investment in Shuaa as a long term and strategic one. Shuaa has a unique market position and an enviable track record coupled with credible management and strong brand recognition. We believe that today’s resolution of our differences is a significant milestone toward cementing its position as one of the leaders in financial services in the UAE”. 

The dispute revolved around Shuaa's decision to convert a 1.5 billion dirham ($408.5 million) bond it had issued to DBG in 2007 into shares. DBG had disputed the move, saying it wants its principal investment back instead. - Reuters and TradeArabia News Service