District cooling firm Tabreed's shares plunged on Monday after the company announced plans to issue more convertible bonds to its key shareholder Mubadala as part of its first dividend payout since 2007.
Shares of Tabreed dropped 5.3 percent on the Dubai bourse , where the main index was up 0.2 percent.
The utility firm proposed to pay a cash dividend of 5 fils per share to all its shareholders, it said in a bourse filing.
In addition to the cash dividend for its holding of common shares, Mubadala, a state-owned fund, will receive non-coupon bearing mandatory convertible bonds for its bond holding, a spokesman for the company said.
"Tabreed will issue more convertible bonds to its key shareholder Mubadala so the number of shares will increase and the value of the shares will fall," said Ashraf AbuShakram, head of institutional sales and regional trading at Abu Dhabi Islamic Bank, explaining the drop in share price. "And more bonds means more debt."
The Dubai-listed company, which received funds from Mubadala to restructure its debt in 2011, said the bonds for Mubadala could be converted into Tabreed shares by April 2019.
The proposals are subject to shareholder approval at the company's annual meeting, to be held on April 9.
Tabreed secured AED3.1bn of financing from Mubadala in March 2011 to help tackle its debt pile. In December last year, the cooling firm agreed to issue AED1.13bn of convertible bonds to Mubadala as part of a recapitalisation plan. Mubadala now owns 14.8 percent in Tabreed.
The cooling firm reported a 30-percent rise in quarterly profits fueled by higher revenues from its core chilled water business.
Shares of Tabreed have climbed 39.7 percent this year on the Dubai bourse.