Shareholders tell Shuaa Capital to carry on

SHUAA CAPITAL: Shareholders tell investment bank to carry on and give mandate to re-negotiate terms of convertible note issued to Dubai Banking Group. (Getty Images)

Shareholders of Dubai-based investment bank, Shuaa Capital, rejected a measure on Wednesday that would have forced the bank to dissolve itself.

Regulators had asked the company, which posted an annual loss of 948 million dirhams last year, to put the dissolution question to shareholders (under Article 285 of the Commercial Companies Law) because its losses exceeded 50 percent of its capital.

The UAE law came into force as a result of the company being unable to increase its legal capital from its reserves due to negative covenants on issuing new shares before the mandatory convertible note issued to Dubai Banking Group (DBG) back in November 2007 is converted.

In the original deal, Shuaa was meant to convert the notes into 250 million in shares but DBG disputed the terms of that agreement after the bank's share price fell sharply, diluting the value of DBG's investment

DBG retracted its commitment in November 2008 claiming that only it has the right to convert, and challenged Shuaa’s contractual right to issue the shares as unenforceable under UAE Law.

Meanwhile, Shuaa shareholders last month authorised its board to negotiate an extension for the maturity of the bond for one year, while the two parties remain deadlocked on the right of Shuaa to convert upon extended maturity.

A new shareholder meeting was then called to seek broader authorisation for the board to negotiate alternative solutions to the dispute with DBG, and the EGM held Wednesday authorised the directors to renegotiate and amend the terms of the company’s outstanding 1.5 billion dirhams mandatory convertible notes, including possible amendment of the maturity date and the conversion rate.

The second vote in less than a month highlighted the company’s losses - mainly due to write downs.

Mr Majid Al Ghurair, Chairman of Shuaa Capital commented on Wednesday: ''As expected, shareholders today expressed their unwavering support for the continuation of Shuaa Capital as a company.

''We would like to thank shareholders for their continued confidence in us. Our shareholders recognise that the firm remains well capitalised with 2.3 billion dirhams in shareholders’ equity and well positioned to overcome the current difficult market cycle due to its strong franchise and market leading position.''

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