May 23, 2019 / 5:25 PM / 5 months ago

RPT-UPDATE 3-Retailer Casino's shares slump as boss Naouri faces restructuring pressure

(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 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 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.

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.


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.

“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)

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