Retailer Casino's shares slump as boss Naouri faces restructuring pressure (updated)

Finatis SA

23/05/2019 18:21

(Repeats story to wider distribution, no changes to text)
    * Casino shares slump before suspension, CDS hits record
high
    * Consistent concerns over debts at Casino and Rallye
    * Investors have long criticised complex cascade of holdings

 (Adds details on CEO Naouri,analyst,context)
    By Dominique Vidalon
    PARIS, May 23 (Reuters) - Jean-Charles Naouri, the 70-year
old retail kingpin behind the Casino  CASP.PA  French
supermarket chain, came under pressure for a big restructuring
of this companies as Casino shares slumped on renewed concerns
over its debts.
    Shares in both Casino and in Casino's parent company Rallye
 GENC.PA  were suspended on Thursday, pending the release of a
statement, fuelling speculation of a debt restructuring at the
financially strained companies.   
    Casino, which is grappling with high debts and a tough
business environment, fell 6.4 percent before being suspended,
while Casino's credit default swaps (CDS) hit record highs.
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    Casino, whose credit rating was further pushed into junk
status by Standard & Poor's in March and which was also
downgraded by Moody's in April, has embarked upon asset sales to
cut its debt and ease concerns over the financial position of
both Casino and its parent holding company Rallye.
    "The suspension of the parent company shares suggest that a
form of debt restructuring will have to take place in those
companies," Bernstein analyst Bruno Monteyne said in a note.
    Casino is the main asset of Rallye, which has a 51.7 percent
stake in the company. Rallye in turn is controlled by Fonciere
Euris, Finatis and Euris, all in the hands of Casino chairman
and CEO Jean-Charles Naouri.
    A restructuring "leads probably to Mr Naouri losing majority
shareholder control of the holding companies," Monteyne added.
    Shares in Rallye, Fonciere Euris and Finatis were all
suspended.
    Naouri, who started his career in French government
ministries including finance, set up his own investment fund
Euris in 1987. He then moved into the retailing industry via the
Rallye company and became CEO of Casino in 2005.
    Naouri is widely credited for turning the French retailer
into an emerging markets powerhouse, whose apogee came with the
acquisition of control of Brazil's top retailer Grupo Pao de
Acucar in 2012.
    The price to pay, however, has been rising debts.
    Investors have also long lamented the complexity of various
holding company structures set up by Naouri and have urged him
to simplify it.
    In 2015, short-seller Muddy Waters criticized Casino's
complex structure and accounting practices, saying the
supermarket retailer was "dangerously leveraged", and managed
for the short-term.
      
    FINANCING ISSUES
    Within the Casino group, dividends from Casino are used to
maintain Rallye's debt interest payments, which makes it hard
for Casino to reduce its gearing. 
    The shares of Casino that are held by Rallye are also
pledged as collateral to banks in order for Rallye to obtain
more financing. So the more Casino's shares fall, the less room
Rallye has to manoeuvre.
    In September last year, Rallye had bought more time ahead of
a key bond refinancing deadline as five banks granted it a new
500 million euro credit line.
    But recent downgrades by credit rating agencies S&P and
Moody's limit Casino's access to the bond market while Rallye
has already pledged all its Casino shares. 
     Earlier this month Kepler Chevreux cut its rating on Casino
 stock to "reduce" from "hold" and slashed its price target on
the stock, warning that Rallye, which has a negative Net Asset
Value, still faced major concerns over financing issues.
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    "At 33.7 euros, 100 percent of Casino's shares are already
pledged by Rallye. Should the price drop below that number, a
margin call will occur,"
    "As there are no shares left, Rallye will need to pay cash,
that is tap its unsecured credit line to repay the part of the
secured line not covered by the pledge" Kepler said. 
    Casino's net debt stood at 2.708 billion euros and that of
Rallye at 2.899 billion euros at end-2018.
    Shares in both Casino and Rallye have fallen by roughly 20
percent so far in 2019, and their slump on the stock market has
drawn the attention of some hedge funds.

 (Reporting by Dominique Vidalon;
Additional reporting by Sudip Kar-Gupta, Blandine Henault and
Helen Reid;
Editing by Sudip Kar-Gupta and David Evans)
 ((sudip.kargupta@thomsonreuters.com; +33 1 49 49 53 84;))