Dubai Banking Group (DBG) and Shuaa Capital moved closer to a court battle over a $409 million bond dispute after DBG on Tuesday said it had initiated legal proceedings. The dispute, which has weighed heavily on Shuaa's share price in recent days, revolves around Shuaa's decision to convert a 1.5 billion dirham bond it had issued to DBG in 2007 into shares.
DBG has disputed the move, saying it wants its principal investment back instead. "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," Fadel Al Ali, DBG chairman, said in a statement.
Shuaa shares closed 9.22 percent lower on Tuesday and have fallen over 30 percent from the high reached initially after Shuaa said it would convert the bond into shares. The row between Shuaa has been dragging on for more than six months and analysts say it risks tarnishing Dubai's role as a regional financial hub.
"It is very disappointing, but not unexpected given the circumstances around the dispute with DBG," a Shuaa spokesman said. On Monday, Moody's Investor Service downgraded long-term foreign and local currency issuer ratings of Shuaa due to the dispute. Moody's said Shuaa's "creditworthiness is subjected to considerable threat giving rise to a significantly higher risk of default" if the matter is resolved in DBG's favour.