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Down to the wire at Choppies, as cash crisis builds

Shoppers at Choppies.
On September 4, suspended CEO and major shareholder, Ramachandran Ottapathu faces off against Choppies’ non-executive directors in a secret ballot that will decide the retail giant’s future. The shareholders, whose votes are much-sought after currency in the fight, are under added pressure as the regional grocer is apparently suffering from ‘serious cash flow’ issues. Staff Writers, MBONGENI MGUNI and MPHO MOKWAPE report

Apart from a handful of insiders, no one has details on Choppies’ financial situation. The pan-African grocer’s books have been unopened for scrutiny since last year when the group posted its results for the half year ended December 2017.

Since that day, July 13, 2018, the group’s shareholders have been in the dark on the value of their investments, as Choppies has repeatedly failed to produce audited results.

The group’s suspension from trading on the Botswana and Johannesburg stock exchanges last November also meant nervous investors could not offload their holdings, a situation that continues today. Even Choppies’ biggest shareholder, the Botswana Public Officers Pension Fund, which holds about 24%, has not been spared the blanket of silence.

Despite this, hints have been plenty. The collapse in Choppies’ share price prior to the suspension was a big clue that confidence was declining even amongst the hardiest of investors.

In fact, for cynics, the sharp decline in Choppies’ share price ahead of the suspension was evidence of a ‘leaky stock’ with suspicions that some investors in Choppies’ secondary listing in Johannesburg had advance warning of troubles to come.

Public filings made at the High Court two months ago, in the lawsuit by suspended CEO, Ramachandran Ottapathu, provided a sharp indicator of the state of finances at Choppies.

The filings showed that Choppies’ operations in Kenya and South Africa, specifically the North West province with 57 stores, were under financial strain and required urgent recapitalisation.

The documents also contained written proof that Ottapathu, popularly known as Ram together with Choppies founder and key ally, Farouk Ismail, had offered the group P250 million from their pockets in bridge financing.

In addition, it was revealed that Choppies had declined to provide a ‘solvency certificate’ to a group of lenders who had filed a request in May. Choppies’ lenders, who include Barclays, Stanbic and Standard Chartered, had expressed concern through an official letter about the quality of financial information emerging from the retail chain.

This week, the clearest indicator of trouble at the retail giant emerged, courtesy of a July 31 court filing by director Wilfred Mpai.

“The company is experiencing serious cash flow issues.”

So serious, in fact, the Choppies has invited investors to take over all or part of their 88 stores in South Africa which, according to the July 13 results, contributed 36% of group revenues of P5.7 billion.

The giant, employing 18,000 workers in eight countries, is shaking but investors cannot fall off, even if they wanted to.

On September 4, they will get their first look at what the boardroom battles at Choppies in the past few months have meant to the bottom line.

The group’s investors will gather at an extraordinary general meeting (EGM) whose agenda item No.1 is an update on the release of the 2018 audited results and “updates in respect of the financial position of the company”.

The agenda item also includes “any other relevant updates which the board considers appropriate and necessary to be tabled before the shareholders”.

The extent to which the investors will be able to respond to whatever is laid before them,

which will be determined by several factors, chief amongst them the exact date the Botswana and Johannesburg stock exchanges agree to allow Choppies to resume trading.

PricewaterhouseCoopers, the audit firm whose preliminary findings triggered the events at Choppies, is still finalising its assessments, using the findings of the forensic and legal probes concluded recently.

The board, meanwhile, has given a tentative indication of when the audited 2018 financials should be published.

“The board is hopeful, but cannot be certain, until any concomitant accounting and disclosure impacts from the legal report and forensic report have been fully ascertained and implemented by the group that the 2018 AFS will be published within a period of six to eight weeks from the release of the forensic report on  August 6, 2019,” reads a statement to investors this week.

That would put the release date sometime at the end of November or beginning of December and even after that, the decision to resume trading lies solely at the discretion of the stock exchanges.

In the interim, investors’ only course of action is to nominate a new board from the names that have been proposed. Four non-executive directors, whom Ram took aim at in his lawsuit in July, have put their names up for reappointment.

Ram himself has come up with three new proposed directors, while unnamed institutional shareholders have proposed two names.

The board has apparently ‘consented’ to the directors proposed by the institutional investors as well as two of Ram’s names, the latter consent confirmed in Mpai’s July 31 deposition.

With an apparent board limit of seven, it would appear shareholders on September 4 will be asked to choose from between Ram, Ismail and three non-executive directors to fill the remaining slots.

Choppies subscribes to the King Code of Governance, which requires boards to have at least the CEO and CFO on the board, balanced with non-executive members with requisite skills or experience.

That suggests CFO, Heinrich Stander and acting CEO, Ismail are safe bets to return, while Mpai, Ronald Tamale and Dorcas Ana Kgosietsile face an uncertain future.

The other non-executive director, former president Festus Mogae, who joined Choppies as chair in 2008, is set to step down once the Annual General Meeting is held, after the publication of the 2018 financials. His position is not up for a vote or discussion at the EGM, by board decision.

As for Ram, going into the EGM, the suspended CEO has been able to prove strong shareholder support for his proposed board.

His lawsuit revealed that Ram at one point secured signatures from two thirds of investors in support of forcing an early EGM, but was narrowly defeated on a technicality.

The non-executive directors, for their part, will be hoping the adverse forensic and legal findings circulated this week, turn the tide of support away from the suspended CEO.

Ram, who holds nearly 20% equity in Choppies and enjoys the unwavering support of Ismail, is due to issue a robust public rejoinder to the forensic and legal findings this coming week, a final salvo before battleweary investors trudge to the EGM.




A luta continua

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