The French casino must once again spin the wheel of debt



Investors in French retail group Casino Guichard-Perrachon SA and parent company Rallye SA can be forgiven for thinking they’ve been here before.

Over the past five years, Casino has launched a €4.5 billion ($4.4 billion) disposal program and completed several refinancings. Meanwhile, Rallye – the investment vehicle of Casino Chairman Jean-Charles Naouri and Casino’s majority shareholder – agreed to a restructuring plan with the French courts in early 2020. This gave it 10 years to repay its 2 .9 billion euros in borrowings.

Still, Casino shares fell to a new low last week after Standard & Poor’s cut its credit rating.

The difference this time around is that there are few easy options left for the company to repay the roughly €5 billion in net debt from its French operations. It is already engaged in an extensive divestiture program, has concluded sale-leaseback agreements for French supermarket properties and has refinanced its debt on several occasions.

To ensure it can meet around 3 billion euros in maturing bonds over the next three years, it must consider selling more assets – its Latin America holdings being the most likely candidate. . Alternatively, it could seek an investor for its French supermarkets, its famous Parisian chain Monoprix and its convenience store Franprix, or it could strike a deal with rival Carrefour SA.

While Casino’s funding structure is convoluted, it has quality assets that match the way consumers want to shop, i.e. in small stores and online. Although its retail businesses have been hit hard by the pandemic and Paris has remained sluggish long after economies reopened, the city is abuzz again and third-quarter results next week are expected to reflect an influx of tourism spending.

But the interim period weighed on free cash flow. This is problematic because Casino had net debt in its retail business in France of around €5.1 billion as of June 30, and just under €7.5 billion across its operations. . This dwarfs the company’s market value, which is now less than 900 million euros. Debt remains stubbornly high despite 4 billion euros in disposals over the past five years.

There is also an impact on Rallye: it relies on Casino’s dividend income to service its own debt, and Casino cannot pay a dividend until it has effectively halved the total debt. of its French activity.

Casino should be able to repay the approximately 200 million euros in bonds maturing in January. It recently raised €600 million from the sale of its GreenYellow renewable energy business and hopes to raise another €500 million from disposals by the end of 2023. This proceeds should help cover the approximately 1, 2 billion euros of bonds maturing in 2024. (He also bought back the debt.)

But it has about 1.8 billion euros more due in 2025. Unless cash flow improves significantly, that likely means more disposals. Casino is reorganizing its holdings in Latin America to hold stakes in three listed entities, estimated at more than 2 billion euros.

A more controversial choice would be to sell a stake in Monoprix and Franprix. French food distribution assets are now held in a single holding company, 100% owned by Casino, which could facilitate outside investment in the unit. But it may not be simple. Some of the chains’ real estate has been sold, while some of Casino’s loans are secured by its French assets.

That leaves room for a deal – if Casino can find a partner.

Vesa Equity Investment Sarl, owned by Czech billionaire Daniel Kretinsky, still holds 10% of the company’s capital. Then there is Carrefour. The two retailers flirted with a merger in 2018 and then again a year later.

Since then, Carrefour has explored other potential tie-ups – a sale to Alimentation Couche-Tard Inc. of Canada and a potential takeover by domestic rival Auchan last year. Neither materialized. But Carrefour has a duty vis-à-vis its shareholders to explore any operation that could be beneficial, and Auchan is still keen to consolidate. So maybe it’s time to reconsider Casino. For all its financial complexity and mountain of debt, it has two sought-after French retailers.

Had Naouri followed his contemporaries Bernard Arnault and Francois Pinault into luxury, he likely would have benefited from the resilience of high-end spenders, exemplified by better-than-expected results from LVMH Moet Hennessy Louis Vuitton SE last week. Instead, Naouri sells groceries in what could become a tougher environment.

It got out of a tough spot three years ago when Rallye agreed to debt restructuring. Casino also started cutting borrowing before the pandemic, so there’s hope it can find a way forward this time around. Yet even if that happens, one thing is certain: it won’t be as simple as selling Louis Vuitton handbags to the rich.

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Andrea Felsted is a Bloomberg Opinion columnist covering consumer goods and the retail industry. Previously, she was a reporter for the Financial Times.

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