Callidus Capital Corp. eliminated its common-share dividend as part of a strategy to devote all its cash to making loans, a move that triggered a sharp drop on Friday in the distressed lender’s share price.
Callidus, controlled by financier Newton Glassman, held its annual meeting on Friday in Toronto and announced that it was halting its $1.20-a-share annual dividend, which was paid monthly, and recently made a $125-million loan. Last year, Callidus made just two loans for a total of $54-million. Callidus president David Reese said the decision to cut the dividend “is a signal to the market that we will use our available capital for growth.”
Mr. Glassman did not attend the company’s annual meeting for “personal health reasons,” Mr. Reese said.
Callidus shares dropped by more than 28 per cent on Friday to close at an all-time low of $3.77 in Toronto. The company went public in 2014 when parent Catalyst Capital Group Inc., a private-equity firm also controlled by Mr. Glassman, sold Callidus shares at $14 each.
Several Callidus shareholders at the annual meeting questioned the decision to cut the dividend, pointing out that the company will save a minimal amount of money while leaving income-seeking investors in the lurch. Mr. Reese estimated the move would conserve approximately $12-million annually, as the majority of the company’s shareholders take their dividends in the form of additional Callidus stock.
One shareholder asked if Callidus faced solvency issues. Mr. Reese replied: “There is no solvency risk; in fact, we previously indicated we have the capital to support $300-million in new loans.”
Callidus executives have been saying since 2016 that they are working on a transaction to take the company private. Mr. Glassman, chairman and CEO of Callidus, previously stated that he was pursuing to a deal that valued the company between $18 to $22 a share, based on a valuation by National Bank Financial.
At Friday’s annual meeting, Mr. Reese said there were no further updates on a possible privatization, but in response to shareholder questions, he said at some point the company will need to either reach a deal or formally end the process.
Callidus did not disclose the name of the company that recently borrowed $125-million, but in response to a shareholder question, Mr. Reese said the company would reveal the borrower’s industry in its quarterly financial results, in keeping with past disclosure standards.
Mr. Reese said in an interview that the new loan did not go to an existing Callidus borrower. In a recent regulatory filing, Callidus said it is considering additional loans to an unnamed energy company that operates in South America and that is facing financial difficulties. Regulatory filings show that parent Catalyst is prepared to lend Callidus US$150-million to meet that commitment. Callidus said it may lend the energy company more money, but is not required to do so.
In 2017, Callidus took a $132-million provision against its loans to the unnamed company that analysts have identified as Oklahoma-based Horizontal Well Drillers, which has extensive operations in Venezuela. At the time, Callidus said it may have to write off a further $64-million on this loan.
Callidus owns six companies that failed to pay back loans, and Mr. Reese said on Friday that two of these companies, casino games manufacturer Bluberi Gaming Technologies Inc. and forest-products company C&C Resources Inc., are turning in improved financial performances. He said Callidus is working on transactions that would allow it to take capital out of those businesses, including recapitalizing Bluberi and C&C or selling the entire company.
Andrew Willis