Choppies’ bosses in P450m payout

Choppies directors Ramachandran Ottapathu and Farouk Ismail are in line for a bumper P452 million pay cheque from the disposal of their shareholding in nine companies related to the listed retail giant.

 In a transaction currently being examined by the Competition Authority, a consortium of investors led by the Standard Chartered Private Equity Mauritius is tying up a deal to buy Spark Capital, a company created to house the nine firms, most of which are suppliers to the Choppies Enterprises.

Apart from their majority shareholding in Choppies, Ottapathu and Ismail also jointly own 94 percent of Spark Capital, with the remainder held by minority shareholders, mostly employees.

The lucrative disposal of Spark Capital comes just three months after the two directors pocketed over P600 million when they sold shares on the JSE.

In an interview with BusinessWeek, Ottapathu said the selldown was in line with good corporate governance and international best practice.

“In line with international best practice, we took an undertaking to dispose of our shareholding in these companies since they are related to Choppies, a listed entity,” he said.

 Other investors in the buying consortium are an American based company, Development Capital Africa Master Fund and Botswana registered Chalk Farm Investments, a company jointly owned by Collins and Newman lawyers, Rizwan Desai and Parks Tafa.

Under the terms of the deal, Stanchart PE, which bought a 12.8 percent stake in Choppies in 2013 in a deal estimated to be worth $60 million, will buy 50 percent of Spark Capital while Chalk farm will purchase five percent. The Development Capital Africa Master Fund will take the remainder.

“The deal is worth around P452 million but the final amount is still subject to audit valuations. Standard Chartered Private Equity will buy a 50 percent stake, while Desai and Tafa will jointly own five percent. The current minority shareholders in Spark, will maintain their shares,” Ottapathu said.

Companies currently housed under Spark Capital include Keriotic Investments, which distributes groceries to Choppies, ILO Industries grain (grain packaging), Honey Guide (milling company), Mediland Healthcare (Pharmaceticals distribution), Mont catering (air conditioning supplies), Real Plastics (bottled water) and Angarappa (building supplies). 

In what appears to be a ‘sweetener’ to the deal, Ottapathu will simultaneously buyout fellow shareholders in Liquorama, before incorporating the liquor outlet company into Spark Capital.

“At present, I own 40 percent in Liquorama and the intention is to buy out fellow shareholders Festus Mogae and Paul Paledi. The holding company of Liquorama, ZCX Investments will then be transferred into Spark Capital,” added Ottapathu.  An official of Standard Chartered Private Equity declined to comment on the transaction. 

 “Given the nature of business, we regrettably are unable to provide any details at this stage,” said Head of Business and Internal Communications for Africa, Lauren Callie.

 In May this year, Choppies successfully placed 277 million shares at an offer price of R4.90 (P 4.02) per share on the JSE. The offer comprised a placing of 117 million new subscription shares and 160 million existing shares. Under the deal, Ottapathu and Ismail collectively sold 150 million shares and pocketed P602 million, while chairman, Festus Mogae was paid P40.1 million for the 10 million shares he sold. The listed company plans to double its store numbers in existing markets and enter new countries such as Zambia, Tanzania and Kenya.

Choppies has seen superior growth over recent years with a compound annual growth rate of 27 percent in total revenues from P2, 435 million for the year to 30th June 2011 to P5, 012 million for the year to 30th June 2014.

Since listing on the BSE in 2012, Choppies has maintained a dividend payout ratio consistently above 30 percent