Skeletons are tumbling out of Choppies’ closet ahead of the completion at month-end of a forensic probe into the group, with multiple sources claiming the findings will rock the regional grocer to its core.
Sources privy to the ongoing probe claim that investigators are battling to untangle a complex web of ownerships and overlapping historical transactions involving senior executives that could have prejudiced the group and shareholders.
Choppies has been in crisis since last September when the Botswana and Johannesburg stock exchanges halted trading of its shares and requested clarification on the reasons for a delay in results for the year ended June 30, 2018.
Choppies’ subsequent clarification triggered an average 76% share price drop on both exchanges, after the group said its new auditors were reassessing historical figures related to business acquisitions, value of inventory, property and others. The board has since suspended its CEO, Ramachandran Ottapathu, pending the outcome of forensic and legal probes into the group, which boasted revenues of about P9 billion in 2017 from operations in eight countries. Ottapathu is popularly known as Ram.
BusinessWeek has learnt that of major concern to the investigators is the issue of related-party transactions involving numerous registered companies that supply Choppies and the alleged ownership of some of these by group executives and their associates. Affected executives allegedly did not disclose their stakes in the companies, giving rise to a host of suspected corporate governance failures and misconduct. The ownerships are reportedly hidden beneath layers of company registrations and proxies that investigators have been battling to unravel. “Investigators suspect there could even be price fixing issues at play where some of these companies overprice their supply to Choppies for the benefit of those who own them,” BusinessWeek’s sources said.
For two weeks, BusinessWeek had been unable to locate the shareholding register for Choppies’ main supplier, Kamoso Distribution. Although available information indicates that Rand Merchant Bank (RMB), Investec Asset Management and others had a majority stake in the suppliers in 2017, officials at the Companies and Intellectual Property Authority (CIPA) told BusinessWeek the file had been missing for a while. Yesterday, the file was recovered and shows that Kamoso Distribution changed names to Kamoso Africa in April. Details of shareholdings were absent in the file, but the eight directors include representatives of Rand Merchant Bank and Investec, which both bought major stakes in 2017. One director is Peter Baird, managing principal of Investec Asset Management Africa Private Equity. Baird was previously at Standard Chartered Private Equity where he was instrumental in the P452 million purchase of Kamoso from Ram and his ally, Choppies founder, Farouk Ismail. Baird appears to have influenced Investec and RMB’s takeover of Kamoso from Standard Chartered in 2017, after moving to Investec in 2016. The board also includes Choppies investor relations executive, Vidya Sanooj and prominent lawyer, Rizwan Desai.
Desai joined Kamoso’s board in December 2015. His firm was recently
Kudua Ramnath, an Indian national and partner of accountancy firm, Accord Consultants, joined the board in March 2019, apparently to replace John Little, a high profile accountant recently raided by the BURS as part of the probe into former spy chief, Isaac Kgosi.
Meanwhile, insiders painted a picture of deteriorating relations between the suspended CEO and the board, where his only remaining ally is reportedly Ismael.
Although Ram has reportedly dropped his campaign to lobby shareholders for an extraordinary general meeting to boot the board out, the board appears determined to keep its maverick former member out in the cold.
Most of the pressure on the board is coming from shareholders who are anxious about the upcoming outcomes of the probes, but cannot dump their stock as Choppies is suspended from trading in Botswana and South Africa. “The company is facing a shareholder exodus once it is allowed to trade due to the revelations they are receiving from the investigations.
“There are reports that losses in some countries were not properly disclosed and that the expansion in countries, addition of more and more shops was being done based on incorrect revenue figures.
“Executives were getting bonuses based on these figures and shareholders are now just eager to get out as soon as they are able,” insiders said. In its last reported results, being for the year ended December 2017, Choppies posted after-tax profits only in Botswana and Zimbabwe, with the rest of the operations in other countries making losses.
The board is meanwhile reportedly considering a delisting in South Africa, where tougher listing requirements mean directors can be held personally liable for failing to comply with statutes there. The investigative reports, it is understood, could land some directors in trouble in South Africa. While companies cannot voluntarily delist while suspended, they can continue or prolong their non-compliance until they force the exchange to kick them out.
“The investigators’ reports are expected to reveal a lot and everyone will need to decide what they do. “For shareholders, they are stuck until the suspension is lifted, but that will only happen when Choppies satisfies the stock exchanges which could be sometime.” On Wednesday afternoon, Ram told BusinessWeek he had no fears about the results of the investigations.
“There’s nothing that is concerning me and that’s why I’m sitting comfortably here,” he said.