(May 4): Minority shareholders of Challenger Technologies demonstrated what they are most irritated about when they voted at the company’s annual general meeting on April 29.

Resolution 2, which called for the payment of a final dividend of two cents per share for FY2018, was passed with the lowest support – 91.10% for, and 8.90% against. The second least popular resolution was Resolution 7, which provides the board with authority to issue shares and convertible securities – 91.43% for and 8.57% against. At the other end of the spectrum, Resolution 1, which was to receive and adopt the audited financial statements for FY2018, was the most popular –99.89% for and 0.11% against.

Challenger’s dividends became an issue after the company announced on March 20 that it plans to delist from the Singapore Exchange, with an exit offer price of 56 cents per share. If Challenger succeeds, will end up being 100% owned by a Digileap Capital, a Cayman Islands company that is 70%-held by the Loo family and 30%-held by fund run by Dymon Capital Asia. But Challenger had a net cash position of $63.2 million as at end-2018, equivalent to almost one-third of its entire market value. Challenger also reported higher earnings of 5.64 cents per share for 2018, versus 4.63 cents per share for 2017. Yet, the company declared total dividends of only 3.1 cents per share for 2018, compared with 3.3 cents per share for 2017.

Challenger’s board fielded a number of questions at its AGM about the company’s highly liquid balance sheet, and the possibility of it distributing more its cash to shareholders. For the most part, they preached prudence, noting that IT retailing is a tough business. CEO Loo Leong Thye reportedly said that having a liquid balance sheet provides the company with flexibility when it comes to opening new stores, as well as renovating or decommissioning existing ones. It also enables the company to pay suppliers early and obtain better terms from them, he added.

Tan Wee Ko, chief financial officer at Challenger, reportedly weighed in on the suggestion by some shareholders that the company make do with a less extravagant cash balance of $20 million. He reportedly sought to win the argument by pointing out that a four-day IT show could require as much a $15 million in cash.

The calls for higher dividend payouts aren’t likely to subside though. In the first place, the comments by Loo and Tan weren’t all that convincing. Despite operating in a cutthroat industry, Challenger is generating solid cash flows, and a return on equity of more than 20%. More importantly, minority investors no longer have any reason to think long-term about their stake in Challenger, given the company’s plan to delist itself. Indeed, even though Loo has proven himself to be an excellent manager of Challenger over the years, his insistence on maintaining a highly liquid balance sheet now risks appearing to be self-serving in the eyes of minority investors.

Minority shareholders ought to press Challenger for further explanation of its need for such a liquid balance sheet, with an eye on the future the company is planning to chart as a privately-held company owned by the Loo family and Dymon Capital Asia. Here are some questions I would ask:

1) Challenger’s delisting announcement notes that the company’s revenue has declined over the last five years. What does this mean for the company’s store opening programme and working capital requirements?

2) What sort of return does Challenger earn from its participation in IT trade shows? And, does Challenger’s board consider this to be an acceptable rate of return?

3) How large a cash balance does Challenger’s board expect the company to maintain after it is taken private?

4) Which of Challenger’s directors expect to remain on the board following the delisting exercise, and which expect to join the board of the offeror?

If you have relevant questions of your own, let us know on Twitter (@THE_EDGE_SG) or Facebook (@theedgesingapore).