Callidus shares take big dive after $218.5M net loss

TORONTO Shares of Callidus Capital Corp. dropped as much as 42 per cent to an all-time low Tuesday morning after the lender reported a net loss of $218.5 million for 2017.

The results compared to income of $1.2 million in the prior year and were due primarily to higher provision for loan losses and impairments, as well as lower interest revenue due to the effect of consolidation of acquired businesses.

In the fourth quarter, Callidus, which lends money to companies that may not qualify for traditional loans, recorded a provision for loan loss of $131.9 million on one specific loan in the energy sector.

On a conference call Tuesday morning, executives said confidentiality provisions prohibit them from naming the borrower, but that the borrower has significant commercial interests in a South American country where sanctions imposed by the United States and Canadian governments are prohibiting certain types of business activities.

In addition, the South American country has defaulted on sovereign bonds, leading to a ratings downgrade, and the nation’s military appears to have assumed management control of the borrower’s main customer, a state-owned oil and gas company.

Analysts suggested the country in question is Venezuela, and that the borrower is Oklahoma-based Horizontal Well Drillers.

Callidus declined to name the party, but said if the borrower’s project is able to proceed and it secures “follow-on business,” the loan could be repaid and the noncash provision reversed. However, if the project does not go ahead, the loans “would be impaired by a further $64 million,” as assessed at Dec., 31, 2017, Callidus said in its annual results.

On the conference call with analysts, chief executive Newton Glassman said Callidus is continuing to pursue a privatization transaction, which has been in the works for more than a year.

He said “normal friction” between prospective buyers and the firm, as a seller, is being affected by “noise” in the market.

“The noise in the market in my opinion, likely created in part by short selling, etc., has succeeded in reducing the stock price to a level that we don’t believe reflects the real value of the assets,” Glassman said. “If I were a buyer ... I would still try and buy it as cheap as possible.

“My suspicion is they will continue to do so.”

He said if and when a transaction is tabled that the board “feels is appropriate,” it will be presented to shareholders.