Stage set for Choppies' moment of truth

Ottapathu faces a stern test on September 4 PIC: Moreri Sejakgomo
Ottapathu faces a stern test on September 4 PIC: Moreri Sejakgomo

Choppies shareholders head for a watershed extraordinary general meeting (EGM) next week to choose the directors they believe can lift the regional grocer out of more than 11 months of crisis that has cost them at least P1.7 billion in share value.

The EGM on September 4, the first time shareholders meet since November 2017, will essentially pit three current non-executive directors against suspended CEO, Ramachandran Ottapathu and his choice of three new board nominees.

The position of Choppies long-serving chair and former president, Festus Mogae, who has publicly fallen out with Ottapathu, will not be up for a vote as a decision has been made for him to step down at the annual general meeting to be held.

The battle is for the support of the 8,000-plus Choppies shareholders who since last September have watched value drop at the regional grocer, after enquiries by new auditors triggered forensic and legal investigations into historic transactions at the group. A major target for the board rivals will be the support of five local fund managers who collectively handle nearly 25% of Choppies shares, as well as several individuals who also count decisively in the final tally.

Earlier this year, Ottapathu, popularly known as Ram, was able to collect signatures from six fund managers, as well as other investors representing a total of 63% in an ultimately unsuccessful bid for an early EGM.

Analysts say the recent circulation of legal and forensic reports loaded with allegations of suspicious transactions and improper corporate conduct against Ram, could sway support against the suspended CEO.

This week, Ram was steadfast about the upcoming EGM, stopping short of expressing optimism about the outcome.

“My priority for now is to get the board that I need; that’s the issue and that’s the first step in the right direction,” he told BusinessWeek.

“We have told our plan for the group.

“The other side has not said anything about a plan. “From the other side there’s no other plan, but just destructive moves to sabotage the company.” Ram’s plan for Choppies involves a recapitalisation of troubled operations and finalising the publication of 2018 audited financials, which triggered the audit enquiry and eventual suspension from the Botswana and Johannesburg stock exchanges last November.

The suspended CEO and Farouk Ismail, a long time ally, Choppies founder and acting CEO, offered a P250 million bridging loan to the Fast Moving Consumer Goods operator in June, apparently in exchange for an early EGM.

“Choppies needs to address the issues in North West province in SA and put in some working capital there and in Kenya,” he told BusinessWeek.

“The board must work as a team to resolve these issues. It’s not happening, at the moment the only issue is investigation, investigation, investigation.

“What is the value in that investigation or the purpose, nobody knows.”

In his battle, Ram apparently enjoys Ismail’s unwavering support. The last available information suggests Ismail holds 14.8% equity in Choppies while Ram holds just under 20%.

“For me, the ideal outcome of the EGM would be me, Farouk and the three nominees getting elected. “That would be the best outcome for me and that would be the best outcome for the company actually.

“We would get a clean plate and full alignment between the board and executives.”

Outside of the shareholders, Ram, who for nearly three decades has been the face of Choppies, is believed to enjoy the confidence of suppliers and lenders who at the last count were owed P1.4 billion in trade payables and P530 million in long-term borrowings as at December 31, 2017. In May, the lenders asked Choppies for a “solvency certificate” a document proving the group’s financial stability, with the board replying that it could not provide one until it better understood the group’s financials.

The suspended CEO, however, disavows any personal support from suppliers and lenders.

“The lenders, no. The lenders always take a neutral view and as long as they get their money they would be happy with that. They have not taken any particular view.  “With the suppliers, it depends on the relationship,” he says.

Meanwhile, Desai Legal Group, which put together the legal report into Choppies that contained numerous allegations against Ram, has defended its findings.

In a response filed via the Botswana and Johannesburg exchanges this week, the suspended CEO accused Desai Law Group (DLG) of conflict of interest and alleged that the suspicious transactions flagged were transactions “on which Choppies and Mr. Ottapathu received legal advice from Mr. (Rizwan) Desai through Collins Newman & Co and later DLG”.  Rizwan Desai, a prominent attorney, was a Collins Newman partner until 2016, when he established Desai Law Group (DLG).

Briefing journalists on Wednesday evening, Desai described Ram’s defence as an attempt at “obfuscation and misdirection”, saying he (Desai) had not been directly involved in the transactions during his time at Collins Newman.

“During the operational time of the entering into of these agreements and the structuring of those transactions, I was not involved,” he said.

“It’s very surprising that the very same individual who appointed this law firm (for the legal report) is now saying the firm is conflicted.

“The truth is that, you come on board and take relevant instructions.

“When you conduct investigations, find certain problematic areas and say the finger points at a certain direction, the person to whom it’s pointing gets frustrated.

“My partners and I stand by the legal report we have submitted and the board has accepted that report. “The issue is not about DLG; we were simply attorneys employed to undertake a function at the request of Ram himself and the board.

“There’s nothing personal about it.”

At the EGM, shareholders will receive a presentation from DLG and Ernst & Young who conducted the forensic investigation, as well as an update on the expected release of the audited 2018 financials. At present, the board expects the financials towards late November, or early December.

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Editor's Comment
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