ETG could get more shares in Choppies Kenya
- ETG pumps around P64m into Choppies Kenya
- Investor to directly pay suppliers off
- But ETG could dilute Choppies shares if it defaults
- Choppies Group almost shut down Kenya business
- Conditions of the loan kept a secret
After pumping in over P64 million into Choppies Kenya that almost collapsed, the Export Trading Group (ETG) could dilute Choppies shares and hike its own stake in the short to the long term, The Botswana Gazette has established.
Choppies Enterprises Limited is on these tenterhooks because should it fail to meet the conditions of the loan, that would almost spell the end of its presence in the East African country as it priestly stands.
ETG, a Kenya-based retail business, has pumped in a staggering US6 million (approximately P64 million) as a lifeline to Choppies Kenya which was on the brink of collapse because of liquidity challenges within the Choppies Group.
Parin Patel, who is the Managing Director of Choppies Kenya, made the announcement, saying that part of the funds would be used to settle 50 percent of outstanding debt to suppliers while the rest will be pumped into operations.
The Patel family controls ETG, one of Africa’s leading agricultural retail conglomerates. Through ETG, the Patel family owns 25 percent of Choppies Kenya while the Choppies Group retains 75 percent. Should Choppies Kenya fail to honour conditions of the loan, ETG could eat into the 75 percent held by Choppies Group, cementing the Patels’ grip on Choppies Kenya. Further, the Patels also sit on the board of Botswana’s CA Sales as directors.
However, conditions of the loan given to Choppies Kenya are a closely guarded secret. Patel did not reveal such conditions. Neither did acting CEO at Choppies, Farouk Ismail, who said he was in meetings and could not comment when approached.
However, close sources have revealed that the loan generates interest, although they did not specify the rate of the interest. Further, should Choppies Kenya fail to service the loan as per agreed conditions, it will be diluted into shares, which will see ETG hiking its stake in Choppies Kenya.
The Choppies Group is currently in financial turmoil and is struggling to fund its operations, signs that it could become bankrupt soon if the matter is not addressed urgently.
Because of its failure to release financial results, creditors and suppliers have been refusing to either finance the Choppies Group or supply it with stock on credit. Choppies is viewed as risky since the creditors do not understand the full extent of its financial position and its ability to service its obligations.
Debt financiers require audited financial statements as part of their credit evaluation process. With Choppies financial statements unavailable, their ability to provide finance to the business is restricted. An equity issuance to institutional market participants is not possible either as the shares are suspended and cannot trade on both the BSE and the JSE
Choppies is already struggling to fund operations at some of its subsidiaries. “We are planning to shut down in Mozambique or sell the business completely,” the group’s suspended CEO, Ram, has told this publication previously. Further, Choppies has cash-flow challenges in Kenya and Ram said should the status quo persist, Choppies could run into problems. However, the ETG Group entered into a strategic agreement with the Choppies Group to help the retailer win back supplier confidence by paying its outstanding debts due to suppliers and resume re-stocking its outlets.
A deal was struck with the Association of Kenya Suppliers (AKS) that all suppliers owed will be paid 50 percent of what is due to them, with the balance payable in three months. The suppliers, according to the agreement, are to resume supplying Choppies Kenya. The other funds will be injected into operations to ensure that day to day running of business is as smooth as before.
The situation has worsened especially in Kenya and Mozambique. While Choppies looks okay here in Botswana, sources say it is only a matter of time before the company struggles to re-stock