Dubai-based investment bank Shuaa Capital said on Sunday regulators should refrain from intervening in a $409 million bond conversion dispute it has with Dubai Banking Group as it was a "legal" matter.

In a letter to the United Arab Emirates' bourse watchdog Emirates Securities & Commodities Authority (ESCA) posted on the Dubai bourse website, Shuaa pointed to several questions which "required very careful consideration" and had to be addressed as "matters of law and public policy."

"We hope that the concerned authorities will treat the matter accordingly and it will not take decisions that effectively pre-judge the issues," Shuaa said.

Shuaa stock fell 9.8 percent on Sunday as the high-profile wrangle continued.

Dubai Banking Group (DBG), an investment arm of a unit of the emirate's ruler, on June 16 rejected a Shuaa decision on the bond conversion, demanding the return of its investment with interest.

Stock market operator Dubai Financial Market, said it would not register the newly issued shares in name of Dubai Banking Group until it received a joint letter from the two parties or an order from authorities to register the shares.

DBG had purchased the bonds for 1.5 billion dirhams in 2007 near the peak of the economic boom that saw Gulf financial firms witness explosive growth.

The bonds were due to convert into 250 million shares at 6 dirhams each on Oct 31, 2008, but the two groups agreed to extend their maturity and negotiate following Shuaa's rapid share price fall.

Shuaa shares are down 80 per cent from their 12 month high of 8.51 dirhams in June, 2008 and closed almost 10 percent lower on Sunday in line with a big drop on Dubai's main bourse.

But since the financial crisis that hit the Gulf in late 2008, the state-controlled DBG has sought to renegotiate the terms of the bond after seeing the value of its investment plummet alongside the share prices of many financial groups.

Shuaa said it welcomed ESCA's desire to reach an agreement, but the two parties had been "unable to bridge the differing expectations."

"External circumstances made the contract unprofitable for one of the parties, which then tried to avoid the financial consequences by rejecting the terms of the contract," Shuaa said.

"The best policy in these circumstances, and the one which has been followed internationally, is to uphold the terms of the contract."-Reuters