May 23, 2019 / 9:01 AM / 3 months ago

UPDATE 3-Casino shares suspended, boss under pressure to restructure

* Casino shares slump before suspension, CDS hit record high

* Long-standing concerns over debts at Casino and Rallye

* Investors have also criticised complexity of companies (Adds details on CEO Naouri, analyst, context)

By Dominique Vidalon

PARIS, May 23 (Reuters) - Shares in indebted French supermarket group Casino and its parent Rallye were suspended on Thursday pending a statement, fuelling speculation of a debt restructuring that could weaken the grip of retail kingpin Jean-Charles Naouri.

Prior to the suspension, shares in Casino, which is grappling with tough trading conditions as well as high borrowings, were down 6.4 percent, while its credit default swaps (CDS) hit record highs.

“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, which are all in the hands of 70-year-old Casino chairman and CEO Jean-Charles Naouri. Shares in Fonciere Euris and Finatis were also suspended.

A restructuring “leads probably to Mr Naouri losing majority shareholder control of the holding companies,” Monteyne added.

Casino’s net debt stood at 2.7 billion euros ($3.0 billion) at the end of 2018, while Rallye’s was 2.9 billion euros. That compares with Casino’s market value of 3.3 billion euros.

Meanwhile, French rival Carrefour’s net debt at the end of 2018 was 3.8 billion euros, compared with a market value of about 13.5 billion euros.

Casino, whose credit rating was pushed further 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 debt and try to soothe market worries over its finances.

Naouri, who started his career in the French government including at the finance ministry, set up his own investment fund Euris in 1987. He then moved into retailing via Rallye and became CEO of Casino in 2005.

Naouri is widely credited with turning the French retailer into an emerging markets powerhouse, notably via 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 the various holding company structures set up by Naouri and have urged him to simplify them.


In 2015, short-seller Muddy Waters criticized Casino’s complex structure and accounting practices, saying the retailer was “dangerously leveraged”, and managed for the short rather than longer-term.

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, Rallye 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 have limited Casino’s access to the bond market, while Rallye has already pledged all its Casino shares as collateral.

Earlier this month, Kepler Cheuvreux cut its rating on Casino to “reduce” from “hold”. It warned Rallye, which has a negative net asset value, still faced financing challenges.

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.

$1 = 0.8977 euros Reporting by Dominique Vidalon; Additional reporting by Sudip Kar-Gupta, Blandine Henault and Helen Reid; Editing by David Evans and Mark Potter

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