The bonds that UAE investment bank Shuaa Capital will sell to state-controlled Dubai Banking Group will be convertible into Shuaa's stock after one year, Shuaa's chief executive Iyad Duwaji said.

The bonds will carry a coupon of six per cent, he said.

Shuaa, the UAE's largest investment bank by market value, said it would sell a 32 per cent stake to state-controlled Dubai Banking Group via 1.5 billion dirhams ($408.5 million) worth of convertible bonds.

Duwaji said the terms of the deal needed to be approved by the regulator and shareholders.

Shuaa Capital's board will call an extraordinary meeting of shareholders on August 5 to seek their approval, although Duwaji said a second meeting might be required if the summer holidays meant there was no quorum.

Shuaa is looking into acquisitions in regional markets as part of an expansion plan, Duwaji said. Dubai Banking Group, the parent of Dubai Bank, will be able to swap the the bonds for 250 million Shuaa shares at Dh6 each.

The firm also plans to raise the ceiling on foreign ownership to 49 per cent from 40 per cent.

State-owned Dubai Holding owns 70 per cent of Dubai Banking Group, while the rest is held by Emaar Properties, the largest Arab developer by market value.

In March Dubai Holding took a majority stake in Emaar by exchanging land for $7.6 billion worth of stock through a convertible bond transaction, although details of that deal have yet to be disclosed.