SKELETONS are tumbling out of Botswana headquartered 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.
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.
Choppies’ subsequent clarification triggered an average 76 percent share price drop on both exchanges, after the group said its new auditors were re-assessing 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.
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.
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.
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 Ottapathu and his ally, Choppies founder, Farouk Ismail.
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.
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.
Mr Ottapathu had said he has no fears about the results of the investigations.
— Mmegi Online.