Mystery at Bahamas Supermarkets

by Richard Coulson

First Published in The Tribune, Thursday,  February 26, 2009

Now, eight months after the close of its last fiscal year,  Bahamas Supermarkets has  failed to publish its annual report  or to call its Annual General Meeting. Not only the company’s 1,500 Bahamian minority shareholders, but also the owners of the controlling entity BSL Holdings Ltd., can only speculate about the warning given last year by  Chairman Basil Sands of a possible $10 million loss for the year ended June 27, 2008.

Equally, since no interim financial statements have been released for the first or second quarters of the current fiscal year,  the company’s recent operations are veiled in obscurity. No dividends are being paid; the shares do not trade; and any estimate of fair value is impossible without financial statements. Mr. Sands must be regretting his assurances last year about prompt publication. The company’s registered office, maintained by Fidelity Merchant Bank, is unable to make any announcement, although  Fidelity Chairman Anwer Sunderji, is a prominent member of the company’s Board.

In the current black-out of all relevant information, it’s only natural that rumors are actively circulating. The most recent one hints that the financial statements have been prepared, but the directors are locked in a dispute with  accountants  KPMG over the wording of the auditors’ opinion. The auditors, it’s said, have difficulty verifying true income and certifying that the company is still a “going concern”.  If that’s so, the Board must  publish management accounts without benefit of the auditors’ letter. The Securities Commission may soon insist on this action. It’s unconscionable that shareholders be left interminably in the dark.

Other rumors include the following:

• Customers find shelves seriously under-stocked.
• The company is not making timely payment to its suppliers.
• Rental payments for  store properties are in arrears.
• Closing several locations is under active consideration.
• The managing shareholder Neil & Massy, the Trinidad/Barbados conglomerate, lacks the local expertise needed to operate in the Bahamian market.
• Dividends  on preference shares issued by BSL Holdings are not paid when due.
• Owners of Holdings are refusing to invest additional funds.
• The Royal Bank’s $24 million loan to Holdings is not being serviced, and the Royal has security interests that enable it to call the loan and seize control.

We emphasize that the above rumors are just that, and may be inaccurate or exaggerated. But the only way to dispel them – or validate them – is to publish complete and up-to date information, and let the chips fall where they may. If true, they suggest that the company is steadily losing money, cannot pay its bills, and is heading towards  insolvency. Under our antique legal system,  liquidation may be the inevitable conclusion.

If our laws followed the more modern pattern of other countries, there could be a different result:  orderly protection from creditors, court-supervised reorganization under a receiver, new directors and management, radical shrinkage of operations, new financing, and eventual return to profitability. This is exactly the path followed by Florida’s Winn-Dixie under Chapter 11 of the US Bankruptcy Code, having emerged from bankruptcy and now trading successfully.

Regardless of the outcome, it’s possible that an activist group of minority shareholders will initiate legal proceedings against the controlling parties of Bahamas Supermarkets, based  fundamentally on the 2006 acquisition by BSH Holdings of Winn-Dixie’s 78% interest in Supermarkets for approximately $16 per share. No similar offer was made to the 1,500 Bahamian shareholders holding 22%. They were not even allowed  to vote on the transaction, which crucially changed control from Winn-Dixie to an anonymous holding company whose composition and lack of experience were never disclosed.

Equal treatment of all shareholders  has long been required by the Takeover Code in the UK and similar legislation in several Commonwealth countries  and the USA, and our Securities Commission is trying hard to adopt similar rules here. But whatever the specific requirements of law, any due regard for corporate ethics would have condemned the structure of the 2006 acquisition. Perhaps its sponsors  considered The Bahamas still too primitive a country to worry about the rights of minority shareholders.