Casino: Can Jean-Charles Naouri keep control of his group?

The placement of Casino’s parent company, Rallye, in the safeguarding process, raises questions about the ability of businessman Jean-Charles Naouri to maintain control of his group.

The implementation of a backup plan for Rally, while easing the pressure on its Casino subsidiary whose title rebounded on Friday, raises questions about the ability of Jean-Charles Naouri to maintain control of his group. Taken between a debt of 2.9 billion euros and the fall of the title Casino which is both its main asset and its guarantee with its lenders, the holding was forced Thursday to seek the protection of the court Paris to suspend the repayment of its debt and to renegotiate it with its creditors.

The procedure was the only way to protect Casino, whose cash generation is largely absorbed by the dividend it pays to its parent company, so that it can pay its financial interests. This announcement took the short sellers back and bounced the Casino title which closed up 7.48% to 30.03 euros after falling more than 20% since the beginning of the year.

Value remains the “shortest” of the French market, according to IHS Markit data. Short sales accounted for 35% of its floating capital on May 23, compared with 28% a decade earlier. For its part, Rallye ended the session down 61.25% to 2.9450 euros.

Casino said Friday morning, in a brief statement read by its financial director, that Rally had not lost control of its subsidiary.

Yet the question of control of Casino will be asked, depending on the terms of a restructuring led by two experienced court administrators, Hélène Bourbouloux and Frédéric Abitbol.

Bondholders
For many specialists, the procedure should lead to a loss of control of a group formed by Jean-Charles Naouri from 1991 through multiple strata of indebtedness.

The cascade of holdings that oversee Rallye, Foncière Euris, Finatis and Euris (unlisted), which is also in debt, has also been put under safeguard.

“We do not think that a simple rescheduling of maturities will be enough,” said Anthony Giret, a credit analyst at Spread Research, for whom Rallye does not have a simple problem of liquidity but suffers from a debt structure that is unsustainable over time.

The most likely outcome, he said, would be to see bondholders, who carry 40% of Rallye’s debt, exchange their claims against capital and thus become the controlling shareholders of the holding company that owns 51% of Casino.

The balance of Rallye’s debt is held by banks, including BNP Paribas, BPCE and Crédit Agricole.

Unlike bondholders, banks have in their possession Casino securities pledged as collateral for Rallye loans. They can always decide to sell them on the market. Bond creditors do not have this leverage.

A capital increase, often carried out in the restructuring operations, may limit the dilution of the controlling shareholder. But this assumption seems unlikely given the debt of the group’s leading holdings.

The assumption of a loss of control of Jean-Charles Naouri is also the central scenario of many analysts, like those of Bryan Garnier, Oddo or Kepler Cheuvreux.

“The only way out would consist of a drastic reduction of debt resulting in a change of control and a departure from Jean-Charles Naouri,” say those of Kepler Cheuvreux in a note entitled “The Swan Song of Rally”. “This would be the only way for Casino to exit strengthened, to avoid a further dismantling of its assets,” they add, saying that “the real problem does not lie in the” speculative attacks “regularly denounced by the distributor but by the mass of debts of his mother-house.

When Muddy Waters remembers at Casino
At this point, Casino has given no indication of what the level of its dividend could be, which could be lowered, at least during the backup period, according to some analysts. The distributor paid approximately € 340 million in dividends in 2018, of which 51% was to Rallye.

The Muddy Waters fund, which was the first to attack the Galaxy Casino, for its debt pile and a financial complexity masking him degraded results, said Friday that the backup of Rally “was a” resounding justification warnings launched in 2015″.

He also encouraged the Autorité des marchés financiers (AMF) – which opened an investigation after the fall of the Casino price at the end of 2015 caused by a report to the vitriol of the fund – to “focus more on the warnings of skeptics” only on the skeptics themselves. “

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