After the implosion of Choppies Enterprises, listed companies moved swiftly to ward off skulduggery maneuvers by company directors which robbed shareholders of millions of pula.
At first glance, the retailer was brought to its knees arguably by a poorly executed expansion. But another ingredient of its controversy was the improper or a lack of transactions disclosures, specifically related party transactions. As the discreditable facts were made public by the scrutiny of forensics, listed companies were taking notes. One such, it appeared, being Turnstar Holdings. It would have seemed two years ago that its Managing Director Gulaam Abdoola had drawn important lessons from the Choppies catalogue of disasters.
In 2019, Turnstar was in the process of selling one of its properties to a former director which needed to be treated with much transparency in line with the BSE rules. Ishmael Nshakazhogwe, through his company, Zambezi Motors, was acquiring land and buildings on Plot 14444 in Gaborone West from the group following his retirement in the previous financial year. Curiously, Nshakazhogwe was a part of the Board when the transaction was initiated, with many wary that he might have been aware of the details of other bids, having had first-hand information when the group went to the market seeking buyers.
Transactions with parties related to a listed company are known as related party transactions. BSE listing requirements define a related party as “any person that is, or within the 12 months preceding the date of the transaction was, a director of the issuer or its holding company. For the purpose of this definition, a director includes a person that is, or within 12 months preceding the date of the transaction was, not a director but in accordance with whose directions or instructions the directors are or were accustomed to act”.
At an EGM in 2019, it emerged that Nshakazhogwe was the highest bidder for the property which constituted 0.5 percent of the value of the Group’s property portfolio. BSE rules dictate that “any contemplated related party transaction, by a listed company (or any of its subsidiaries), which will lead to the ratio of the total transaction value (of all transactions with the same related party) to the Company’s book value as per the last audited financial statements, exceeding 0.25 percent, shall be referred by the issuer to the BSE for review before its implementation”.
When investors quizzed Abdoola, he openly told them that Turnstar had engaged the BSE about this transaction sale and that it was done by the book and had met all necessary requirements. “We were asked and we told them it is in the best interest of Turnstar,” he told shareholders. The BSE had also advised Turnstar to inform its shareholders about the transaction at the AGM.
During proceedings of an EGM which this publication was a part of, Gulaam portrayed the composure of a man inclined to strictly follow official rules. But for a man who insisted on doing things by the book, the stroke of bad luck was unfolding when an apparently scrupulous transaction began. It involved the acquisition of four apartments for AED 3,396,062 by the Group in a development known as Okavango Place, a residential property development of some 83 units constructed by a certain Sameer Lakhani and/or Global Capital Partners (GCP).
The details of this transaction are contained in a report by Desai Law Group (DLG) which was engaged to investigate the deal after a horribly executed expansion in Dubai. DLG indicated that this development had started around 2016. Initial investment into it had been made by a group of citizen investors from Botswana, namely Abdoola, Satar Dada, Mohammed Ismail, Faizel Ismail and Professor Mohammed Chand. Investment by Batswana into the development was to be made via a Dubai-registered entity by the name of Bucephalus, which was established as a special purpose vehicle/ holding company and was not a development company or developer. It was to receive funds from investors, take title to the Okavango Place from JAB Mosaistone Developments Limited, and upon completion of the project transfer a proportionate number of apartments to each investor based on their respective investment amounts.
Upon completion of these objectives, Bucephalus would be closed down. In other words, because property would not be held directly by foreigners, Bucephalus was a conduit with the intention that once the development was completed, transfer of title to the relevant number of invested units would be made to each investor via Bucephalus at the relevant time. According to DLG report, shareholding of Bucephalus is held 50 percent by Abdoola, 25 percent by Lakhani and 25 percent by a certain Uzair Razi, with each of being its director.
Sometime around December 2019, Abdoola is said to have approached the board of Turnstar to indicate that Okavango Place was 98 percent completed and that Lakhani had not met his last instalment payments as an investor. This meant that four units were now available for investment at a value of AED3,396,062. The Board considered the acquisition and approved it. According to Board minutes as quoted by DLG, Abdoola recommended an investment of P10 million which would result in the company owning four single bedroom residential units. Since the development was almost completed, Abdoola told Turnstar that it would not be exposed to development risk. The Board approved and Shiran Puvimanasinghe signed an agreement relating to the investment on January 2020 with Razi being a counter-signatory on behalf of Bucephalus. If a director of a listed company has a personal interest in a matter being considered at a directors’ meeting, BSE rules prescribe that they must recuse themselves from the meeting while the matter is being considered and shall not vote on the matter.
But in its review of the Turnstar investment into Okavango Place, DLG noted that Abdoola did not disclose to the Board that he was a related party in that he was a shareholder and director of Bucephalus. However, DLG further stated that in its first formal interview with him, he had indicated that the Board was aware of him having co-invested in Okavango and that he made no specific disclosure in relation to Bucephalus as Bucephalus was only a special purpose vehicle and conduit for investment into the Okavango Place development. Board chair nominee Butler Phirie this week told this publication that the element that there was no disclosure to the Board has been also refuted by the same DLG report which says there are minutes where this issue was presented to the Board and the Board did take a decision. “So disclosure was provided at that level,” Phiri said.
BSE listing requirements dictate that a listed company has to send a circular to its shareholders. Any circular sent to shareholders in connection with a related party transaction must provide sufficient information to enable any recipient of the circular to evaluate the effects of the transaction on the listed company. A listed company must obtain independent shareholders’ approval by way of an ordinary resolution passed by shareholders present or represented by proxy at the general meeting. Shareholder approval must be obtained either prior to the transaction being entered into or, if the transaction is expressed to be conditional on such approval, prior to completion of the transaction.
Butler Phirie told The Business Weekly & Review that the P10 million had not yet consummated into an investment. “Accordingly, it was held in the books of the company as an advance,” he said. The DLG report shows that this was held as an advance in Turnstar’s annual financial statements for the years ended 31st January 2020 and 31st January 2021.
From Turnstar’s position, this was an advance until its allocation becomes an investment. Phirie revealed that Turnstar has engaged with the BSE. “They have written to us and we have responded,” he said. “They are yet to come back to us as to what their final conclusion is. It is going to be interesting what findings will come out. I cannot make a comment on where they are going to end up with it.” Phirie argued that the P10 million in reference of whether it was within the threshold of material or not should be tested. But in his view, chances are it would have been very small.
BSE rules also dictate that any related party transaction by a listed company (or any of its subsidiaries) is required to have been reviewed and recommended for approval by the Audit Committee of the listed company, either prior to the transaction being entered into or, if the transaction is expressed to be conditional on such approval, prior to completion of the transaction. Further, the directors should ensure that they have, or have access to, sufficient knowledge or expertise to assess all aspects of the proposed related party transactions. Where necessary, they should obtain appropriate professional and expert advice from appropriately qualified persons.
DLG found that no due diligence exercise was undertaken as to evaluation of four apartments, no legal advice procured and no certification of rights allocation. DLG said there appears to have no been follow-ups on title deeds after the meetings on the 8th June 2020. The uncertainty over this investment resulted in Abdoola refunding the Group its ‘investment.’ The BSE has reportedly been looking at the report by DLG around whether Turnstar had disclosed efficiently its botched Dubai deals.
The Okavango deal is just one of the deals gone wrong for Turnstar along the Palazzo Venezia. For the latter, disclosures were done at the time of investment years prior. What some are asking is if a disclosure should have been made (cautionary) when it appeared something was now amiss. The gory details were first disclosed by the media whereupon Turnstar triggered the Group to publish on X-news.
The BSE’s query is in line with the Securities Act 12 (4) which states that a director, controller, employee or agent of an issuer who fails to comply with the listing requirements commits an offence and shall be liable to a fine not exceeding P100 000. This is to be imposed by the regulatory authority or securities exchange, unless it is proved by any such person charged under this subsection that through no act or omission on his or her part, he or she was not aware that the offence was being committed or that he or she took reasonable steps to prevent its commission. Further, the BSE is reportedly questioning Turnstar’s compliance with Section 7 of the listings rules. Failure to comply with the rules attracts a fine of around P250 000 for companies. BSE declined to comment.