SHUAA Capital has confirmed plans to issue two mandatory convertible bonds (MCBs) – valued at up to AED 367 million ($100 million) and up to AED 275.5 million ($75 million).

The smaller issuance will be offered to existing bondholders of the investment bank’s outstanding bond, which matured following a five-month extension at the end of March and is expected to be issued by a SHUAA-affiliated special purpose vehicle (SPV) on or before 31 March 2025.

No date has yet been given for the larger tranche, which will be issued by private placement, but SHUAA said in a Dubai Financial Market (DFM) filing it was subject to required regulatory and shareholder approval, with the conversion valuation to be determined by an independent financial advisor who is yet to be announced.

Issuing new MCBs to existing bondholders is  “quite positive” and “a turnaround story” which would recapitalise the bank, along with capital from a new strategic shareholder for the larger issuance, a bondholder told Zawya. The bondholder, who preferred not to be identified, said prior reports that bondholders were receiving an 80% haircut were inaccurate.

Another source familiar with the matter said bondholders are expected to receive 50% or $75 million MCB converted into equity, 20 cents on the dollar in cash, plus coupon and consent fees. 

“The equity has an upside because they will convert at the same valuation of any new investor,” the source added.

SHUAA is currently suspended from trading as discussions continue with auditor PwC regarding its audited 2023 financial results, which it is yet to file.

The source said SHUAA’s share price, which last closed at 13fils, close to its all-time low, is likely to rise once debt issues are resolved.

SHUAA also announced the appointment of Wafik Ben Mansour as CEO. He has been acting CEO since November 2023. 

Why MCBs?

MCBs are permitted by the UAE financial regulator the Securities and Commodities Authority (SCA) to inject money into companies without having to do a rights issue. The instrument differs from a classic bond in that the debt is converted into equity when companies need immediate cash.  

SHUAA previously announced plans for a rights issue, but Zawya understands that it will now be replaced by the MCBs.

(Reporting by Imogen Lillywhite; editing by Seban Scaria)