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While suspended Choppies CEO Ramachandran Ottapathu may have wagered that the best way for him to get out his jam is to resign, he is presenting the offer on terms that would leave him more powerful than ever, writes KEABETSWE NEWEL

An ongoing forensic audit at Choppies reportedly implicates suspended Chief Executive Officer (CEO) Ramachandran Ottapathu in serious financial crimes so much that he has asked to the board of directors to allow him to resign, The Botswana Gazette has established.

Even so, there is a dramatic irony in that he seems to be holding up his offer to resign as a bargaining chip and is presenting it as a tough quid pro quo.

This publication called Ram to confirm if indeed he wants to resign and the reasons for his resignation but he said he was not in a position to discuss Choppies operations and referred this publication to Choppies attorney Rizwan Desai of Desai Law Group. However, Desai was not forthcoming either because Choppies matters are under investigation and before the board.
Acting chief executive Farouk Ismail did not pick up his mobile phone and has not responded to an inquiry sent to him since last week.

Led by former president Festus Mogae, the board of directors suspended Ram in May. Three parallel investigations – forensic, financial and legal – are ongoing at Choppies and are expected to be completed in a week or two from now. The results are expected to guide what will happen next at Choppies and pave way to releasing the group’s long overdue financials. There have been questions over the valuation of Choppies stock and its true financial position, especially the giant retailer’s South African and Zimbabwean operations.

Sources within the board of directors told The Botswana Gazette that Ram could be implicated in financial crimes such as money laundering, related party transactions and mismanagement of Choppies, hence he is succumbing to pressure and has proposed to resign at the last board meeting.

According to auditors PricewaterhouseCoopers (PwC), Choppies has been found to have engaged in secretive financial dealings where the company transacted with related parties without disclosure. Choppies’ financial reporting methods have also been found to have been non-compliant with the International Financial Reporting Standards (IFRS).

While it is expected that the forensic report will be released some time in August, the legal report – which was conducted by the Desai Law Group – has since found that Ram used his Choppies CEO position to acquire 50 percent shares for free in the Fours Group without knowledge of the board and never disclosed the fact. Ram also used Choppies money running into millions of Pula, again without disclosing to the board, to finance acquisition of some shares in Payless by an associate of his.

Interestingly, Ram’s resignation proposal to the board reportedly comes with unreasonable conditions in that he wanted the board to allow him to buy more shares in the Choppies Group and to have a say on who will succeed him as CEO. By acquiring more shares in Choppies, Ram would be increasing his stake that is currently just above 19 percent.

It emerges that Ram’s strategy is to consolidate his power at Choppies so as to be able to run the giant retailer from outside. The board is reported to be reluctant to accede to his conditions. Only Farouk, who is Ram’s ally, is in agreement with them. The two, according to sources, are looking for strategic ways in which they could buy more shares and get control of Choppies.

A few weeks ago, Ram and Farouk offered to loan Choppies P250 million on conditions that the money be converted into shares or be paid back after the company has raised funds from the capital market through a rights issue. By converting the loan into shares, Ram and Farouk, who jointly control just under 35 percent of Choppies, could see their shares shoot up to around 50 percent.
Following the recent public scrutiny of Choppies affairs, the two business partners are reportedly unhappy so much that if it was up to them, Choppies would delist from the BSE and keep out of the glare of the public. But for them to delist Choppies, they need to have a bigger stake that would enable them to bargain harder.

CHOPPIES IS BROKE
At Kgori Capital, Investment Analyst Kwabena Antwi says raising capital during this period where Choppies shares have been suspended and financial statements have not been released would be challenging. “Debt financiers require audited financial statements as part of their credit evaluation process, and with financial statements unavailable, their ability to provide finance to Choppies is restricted,” Antwi notes. “An equity issuance to institutional market participants is not possible as the shares are suspended and cannot trade on both the BSE and the JSE.”

However, he says it is possible for a private equity vehicle or wealthy investor to inject capital into the business. 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,” Ram told this publication previously.

The giant retailer also has Choppies cash-flow challenges in Kenya, prompting Ram to say should the status quo persist, Choppies could run into problems. The situation has worsened especially in Kenya and Mozambique. While Choppies looks fairly okay here in Botswana, sources say it is just a matter of time before the company struggles to re-stock. At Motswedi Securities, Head of Research, Garry Juma says Choppies initially survived on short-term loans to finance operations and buy stock. That financiers are refusing to fund Choppies before it releases financials could cause more cash-flow problems for Choppies.

Some suppliers are not wary of giving Choppies stock on credit. Juma says investors could lose money in cases where Choppies’ financial position is seriously bad because the value of Choppies would decline and consequently the share price, should the BSE lift its suspension. “Further, by closing some branches, the market value of Choppies will decline but shareholders cannot do anything because shares are under suspension,” Juma points out. “Normally, they could sell, but now they cant,” he said.
At 19.5 percent, Ram is the largest shareholder, followed by Farouk at 14.8 percent. Standard Chartered Private Equity Ltd owns 13.3 percent, Allan Gray 11.3 percent while African Alliance Advisory (Pty) Ltd owns 10.2 percent. Kgori Capital, BIFM, Stanlib and Investec are also exposed.

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