DECLOUT'S decision to take a S$10 million margin loan that triggers immediate repayment if two of its executives lose control of the company has riled a group of minority shareholders who is threatening to remove the management.
On Wednesday, DeClout, a Catalist-listed holding company for technology firms, took a two-year loan from a group of six private investors against its entire 46.83 per cent stake in mainboard-listed enterprise hardware supplier Procurri.
The loan accrues 8 per cent interest per annum. The removal of chairman and group chief executive Vesmond Wong from his role is considered an event of default. So is the removal of executive director Kow Ya. If Mr Wong's stake in DeClout falls from 12.24 per cent now to below 11 per cent, the loan also becomes due in 25 business days.
Speaking to The Business Times on Friday, Lloyd Moffatt, director of fund advisor Wickams Hill Capital, said the loan strips "minorities of the right to elect their board representatives and is clearly not in the best interest of shareholders".
Mr Moffatt said he represents a group of minority shareholders in DeClout who together control more than 10 per cent of the company.
The group had met with DeClout's management on several occasions, urging them to realise value in both Procurri and DeClout. In February, the group turned up the heat.
"We challenged management that if they were unwilling to realise value through an in specie distribution of Procurri to shareholders we would take steps to remove them," Mr Moffatt said.
In response to queries from BT, DeClout's Mr Wong said "it is not unusual" for loan transactions to be secured against securities provided by the borrower.
He added: "As a listed corporation which experienced a challenging period in 2017, we have received various feedback from shareholders. The company has not received any requisition notice seeking to remove myself or Kow Ya as directors."
Mr Wong added that a dividend-in-specie is only one capital market option: "In our view it may not serve the long-term interests of our stakeholders."
Keshik Capital managing partner Alex Turnbull, who recently became a shareholder in DeClout, is also disapproving of Declout's loan deal, which he says ensures that the "management cannot be removed".
Mr Turnbull said that when he tried to inspect the S$10 million loan document at Declout's office on Friday, the lenders' names were blacked out.
Both Mr Moffatt and Mr Turnbull are Procurri shareholders who became DeClout shareholders after identifying what they said were corporate governance issues.
In December, DeClout took a S$5.8 million impairment for ZiPAY, a subsidiary. This was shortly after it raised its beneficial interests in ZiPAY from 75.3 per cent to 100 per cent in September last year.
When asked by BT, Mr Wong declined to reveal the identities of DeClout's new lenders, "due to reasons of confidentiality".
He said only that none of DeClout's directors nor their associates has any interest, direct or indirect, in the loan agreement.