Government-controlled Dubai Banking Group (DBG) on Tuesday said it had initiated legal proceedings against Dubai investment bank Shuaa Capital in a dispute over a $409 million bond.

The dispute, which has weighed heavily on Shuaa's share price in recent days, is over Shuaa's decision to convert a 1.5 billion dirham bond it had issued to DBG in 2007 into shares. DBG has disputed the move, saying it wants its principal investment back instead.

'Since it has become clear that a resolution is not possible at this time, we have no choice but to pursue litigation in order to redeem our original investment in the company and other amounts outstanding including interest,' Fadel Al Ali, DBG chairman, said in a statement.

On Monday, Moody's Investor Service downgraded long-term foreign and local currency issuer ratings of Shuaa due to the dispute. A spokesman for Shuaa declined to comment.-Reuters