Suspended Choppies CEO Ramachandran ‘Ram’ Ottapathu has a lot to answer for. He is accused of using BWP100 million (R137 million) of the Botswanan retailer’s cash to finance the acquisition of his personal 50% stake in another retailer, Fours Group.
Fours Group runs the Fours Cash & Carry chain in Botswana and is a direct competitor to Choppies. Ottapathu was allegedly holding the shares in the group on behalf of Choppies, but neglected to tell the board or the Botswanan competition authorities he was holding them.
This is not the only irregularity to happen under Ottapathu’s watch. It is also alleged that, without board approval, he pushed through a BWP110.7 million (R152.4 million) “loan” to Saleem Malique and Willem Henning that had them respectively take a 90% and 10% holding in another company, Payless.
Choppies, along with Fours Group and Payless, had gone into a buying agreement in 2015, with the goal of getting discounts on large orders.
Irregularities picked up by its new auditors, PwC, late last year led the Choppies board to launch two separate investigations – a legal one by law firm Desai Law Group, and a forensic one by EY.
The forensic investigation looked into questionable “bulk sales” worth R129 million in South Africa from November 2017. EY said it could not find any record of the inventory of these sales and concluded that as it “could not be physically verified”, it “presumably” did not exist.
The forensic report does not say which companies are involved but does say: “These two counterparties are related to each other through common ownership and directorships.”
The report also found that not only was R123 million of these bulk sales “channelled back to one of these counterparties”, the transactions were also “fraudulently” backdated to the acquisition of stores Choppies had bought between October 2016 and October 2017.
EY also discovered there were “more than 100 unique other business interests, which had not been declared to the group by three current directors and one former director”.
The findings of these reports are the latest setback for the group that has yet to produce its results for the 2018 financial year. This delay led to the JSE and the Botswana Stock Exchange suspending trade in its shares.
Choppies said that following a review of its operations it is looking to dispose of its 88, mostly rural-based stores in SA. The exit from SA comes 11 years after it started setting up operations here and four years after listing on the JSE.
The group has gone through a torrid period over the past year. Besides not releasing its results for the year to end-June 2018, or any other results that have been due, it saw its chief financial officer, Sanjoor Pullarote, suddenly depart in December, with Ottapathu suspended as CEO at a board meeting on May 20.
Chair to step down too
The next departure is that of its chairman, former Botswanan president Festus Mogae, who will step down at an extraordinary general meeting on September 2.
Although no formal reasons were given for Ottapathu’s suspension at the time, there were concerns about how Choppies accounted for its stock. Its previous auditors, KPMG, pointed out in its 2017 annual report that it had noticed “significant differences” in the inventories counted and its records.
Farouk Ismail, current deputy chairman of the board, has assumed the role of interim acting CEO.