DUBAI - Dana Gas will seek shareholder approval to pay a dividend for 2017, it said on Sunday, in a move that could complicate its legal dispute with investors demanding that the company settles $700 million of Islamic bonds.

The United Arab Emirates energy producer's share price jumped by 8.3 percent after it announced that a shareholder meeting on April 11 would discuss a proposal to pay its first cash dividend in several years.

The dividend, equivalent to 5 percent of capital, would total about 349 million dirhams ($95 million).

The payout, however, may not be welcome news for international funds and local investors that hold the company's sukuk and want Dana to direct its resources towards repaying that debt.

Dana last year halted payments on its sukuk, which matured in October, saying the bond had become unlawful in the United Arab Emirates because of changes in Islamic finance.

Instead, Dana proposed to exchange the sukuk for new instruments with lower returns. This was rejected and the company has been fighting the investors in British and UAE courts since then.

A source familiar with the matter told Reuters that an English High Court injunction forbidding Dana from paying dividends because of the dispute would expire on March 29.

The company had $608 million in cash at the end of 2017, according to its financial statements. Last August Dana's financial outlook improved when the government of Iraq's Kurdistan region paid the company and its partners $1 billion under a settlement of a payments dispute and the consortium now plans to invest in boosting gas production there.

Dana has been in talks for months with at least some of its creditors on proposals to restructure its sukuk. One of the proposals envisaged Dana redeeming 10 percent with cash and rolling over 90 percent under new terms.

The proposed 10 percent paydown was one of the main sticking points in negotiations, sources told Reuters last month. Creditors want the company to redeem a higher proportion of the sukuk. 

A committee of sukuk holders did not immediately respond on Sunday to a request for comment on the dividend plan.

Another source close to the situation said that by offering a cash dividend to its shareholders, “Dana Gas is making the deal they offered to creditors a fait accompli -- the cash is gone, take it or leave it”.

(Editing by Andrew Torchia Editing by David Goodman) ((Davide.Barbuscia@thomsonreuters.com; +971522604297; Reuters Messaging: davide.barbuscia.reuters.com@reuters.net))