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Mon 22 Dec 2008 11:15 AM

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UP seeks $681mn bond sale

UPDATE 1: Dubai developer seeking regulatory approval to issue convertible bonds to strategic investors.

Union Properties said on Monday it wanted to issue up to 2.5 billion dirhams ($680.6 million) of convertible bonds, as securing project financing from banks becomes difficult during a global financial crisis.

Union Properties would seek regulatory approval to issue the bonds to "strategic investors", after its board lent support to the plan at a meeting on Monday, the firm said in a statement on the Dubai bourse website, without elaborating.

"The signal is that they need cash," said Hamood Abdulla al-Yasi, general manager at Emirates International Securities.

"Banks will not give you cash now or they will do it with too many conditions. Selling bonds is a tool to get money and the strategic investor is entitled to an interest dividend of six or seven percent," he said.

Shares of Union Properties, down about 80 percent this year, retreated more than four percent after the announcement.

The Dubai index, which has slumped 70 percent this year, fell another 4.59 percent as of 0725 GMT.

Banks in the UAE are applying more stringent lending rules as they contend with a global financial crisis that has driven up interbank lending rates and face more defaults during a property price correction in the emirate of Dubai.

Credit growth in the UAE would slow to no more than 10 percent next year, after soaring more than 50 percent in the year to June, the central bank governor said last week.

Other UAE firms have also pursued convertible bond sales this year as a means of securing financing.

Investment bank Shuaa Capital said on Monday it would ask for shareholder approval next month to extend the conversion period of convertible bonds, likely referring to those issued to Dubai Banking Group earlier this year.

Abu Dhabi's International Petroleum Investment Co. said in September it would take a majority stake in Aabar Investments by buying $1.82 billion of convertible bonds.

Other financial institutions - including First Gulf Bank and National Bank of Umm al-Qaiwain - have also sold bonds to strategic institutional investors this year. (Reuters)

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