* Dubai firm refuses Bank Islam preference share offer
* Dubai Group says reviewing options over stake
* Says Malaysia remains key market for future
* Bank Islam says would welcome partner who adds value (Adds Bank Islam's statement on new potential parter)
By Liau Y-Sing and Nicolas Parasie
KUALA LUMPUR/DUBAI, Oct 1 (Reuters) - Dubai Group, an investment vehicle owned by the ruler of Dubai, is reviewing options for its stake in Malaysia's Bank Islam as it shifts its strategic focus closer to home, it said on Thursday.
If Dubai Group eventually sells its stake in Bank Islam, it could spark a round of consolidation among Malaysia's Islamic banks. Several Islamic bankers in Malaysia have said Maybank's (MBBM.KL) Islamic subsidiary wants to acquire a stake in Bank Islam.
"Dubai Group confirms that it is in the process of reviewing its strategic options relating to its (Bank Islam) stake," it said in a statement on its website. "Following the reassessment of its investment strategy, Dubai Group has redirected its competitive advantage closer to home."
Bank Islam, Malaysia's No. 2 sharia bank, had offered preference shares to its shareholders in April to raise up to 540 million ringgit ($156 million). But Dubai Financial Group, a unit of Dubai Group which holds a 40 percent stake in the Malaysian lender, refused the offer, Bank Islam said on Thursday.
Maybank Islamic is the biggest Islamic bank in Malaysia, which has one of the world's most developed Islamic financial industries, thanks to a vast sharia bond market and a well-established regulatory framework.
Talk of a Maybank Islamic-Bank Islam merger comes as several other banks in the rapidly growing sector seek acquisition opportunities, though a weak global economy could put a brake on expansion plans.
Kuwait Finance House Malaysia, a subsidiary of Kuwait's top Islamic bank, and Islamic Bank of Asia, which is backed by Singapore's DBS (DBSM.SI), have said they are on the lookout for acquisition opportunities in the region.
Dubai Holding, Dubai Group's parent, is undergoing a transformation to help it weather the global crisis.
"They are looking into assets that can be liquidated to generate cash and to support the restructuring process," said Samer al-Jaouni, general manager of Middle East Financial Brokerage Co.
"The focus will be more on local markets, they will become more picky in overseas investments ... I think this will become the strategy going forward," he said.
Dubai Group said, however, that Malaysia remained a key market for future investments.
Islamic banking group BIMB Holdings Bhd (BIMB.KL) owns 51 percent of Bank Islam, with Lembaga Tabung Haji, or the Malaysian pilgrims fund, holding the remaining 9 percent.
Both Malaysian shareholders took up the share offer, allowing Bank Islam to raise its Tier 1 capital by 324 million ringgit, it said in a statement.
"Dubai Financial has not taken up the offer to subscribe to its portion of the (share offer) by 30 September 2009 amounting to 216.0 million ringgit," Bank Islam said, adding it would offer the shares to the other two shareholders on a pro-rata basis.
Both shareholders have to decide whether to take up the offer within seven days, Bank Islam said. It later said "a major shareholder" would subscribe to Dubai Financial's portion of shares worth 216 million ringgit. It did not name the shareholder.
"Bank Islam is of the view that the possibility of Dubai Financial Group divesting its existing stake in the bank is strictly its prerogative as a shareholder," the Malaysian bank said in a statement late on Thursday.
"If and when Dubai Financial Group sells its stake, Bank Islam would welcome any strategic partner who can add value to the bank's business and growth plans." (Editing by David Holmes and Rupert Winchester) ($1=3.460 Malaysian Ringgit)