Shoprite halts dividends in Zambia

Shoprite yesterday told holders of shares on its Zambian register that dividends will not be paid because of litigation over missing shares worth R70m. Executive director Carel Goosen confirmed that an extraordinary meeting of shareholders in Lusaka was told all Zambian dividends would be put into an escrow account until it could be established which shares were legitimate and which were not.


At the time of the results conference in August, CEO Whitey Basson confirmed that shares which should have been held with the transfer secretaries, had gone missing. In the Lusaka listing three years ago only 400 000-500 000 shares were taken up. Goosen said a further 1,2m were then held as treasury shares. The intention was gradually to sell shares into the market to increase liquidity, also to use the shares as a staff incentive. The shares were in the custody of a law firm Lewis Nathan Associates, which acted as transfer secretaries.


Physical verification
Goosen said the firm initially gave good service and acted within its mandate. This year when the time came for physical verification, the treasury shares were missing. The firm could not, or would not, show where the money was. Shoprite made a provision of R70m against the loss in last year's accounts but continues to pursue its shares or their proceeds. In September the Times of Zambia reported that Shoprite sued Lewis Nathan Advocates plus four of its lawyers in the Kitwe court for breach of contract. Judge Isaac Chali granted an interim interdict restraining the defendants from acting as transfer agents.


Shoprite further asked the court to order the respondents to account for all sales and dealings in Shoprite shares on the grounds that they had breached their fiduciary duty and the trust and loyalty of Shoprite. It asked for an injunction freezing the accounts of the defendants from operating an identified account at Barclays or any bank elsewhere in which the proceeds of the sale of the shares might be held.


The Times of Zambia said Robert Simeza, for the defendants, attempted to have the case set aside last month because it was "irregular". The respondents, in addition to the firm itself, are: senior partner Lewis Mosho, as well as Lastone Mwanabo, Charles Chonto and Frederick Mudenda. The case will proceed into 2012. Goosen said the case was yet in the discovery phase. He did not even know which stock brokers might have dealt in the shares. Shoprite's head office in Cape Town became suspicious when a shareholder alerted the company that the shares in Lusaka were trading at a 50% discount to the JSE price. "We accepted there would be a discount of around 10% but 50% told us all was not lekker."


Not in annual report
A Johannesburg stock broker who did not want to be named was at the extraordinary meeting yesterday. He said he has examined the Lusaka stock exchange listing requirements and could find no reason why shares on the Zambian register could not be transferred to SA holders. Goosen said shares on the Zambian register were not listed on the JSE, so even though there are no forex restrictions, they could not be traded in SA. "You would have to delist them in Zambia and then list them on the JSE. That would not be easy." Goosen said Shoprite regretted freezing the dividends because it affected bona fide shareholders. He said Shoprite would try to clear up the matter as quickly as possible "but the Zambian courts are a bit like ours, so it will take time". The R70m is small in terms of Shoprite's sales and profits, so received no mention in the recent annual report.