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Shares in French food retailer Casino tumbled as much as 37 per cent on Thursday after the heavily indebted group said it would convert up to €1.5bn of secured debt into equity, warning that its shareholders would be “massively” diluted by the move.
Between €1bn and €1.5bn of Casino’s assets in secured debt would be converted into equity in order to reach a debt structure “compatible” with cash flow generation laid out in its 2023-25 business plan, the company said on Wednesday.
This comes on top of the €3.6bn of unsecured debt the group had previously said would be converted into equity, as part of an ongoing debt restructuring negotiations with creditors in a race to shore up the retail group’s finances.
“The current shareholders of Casino will be massively diluted and [parent company] Rallye will no longer control Casino,” the company said. Rallye’s shares fell 45 per cent on Thursday.
Casino began voluntary negotiations with its creditors — called a procedure to conciliation — in late May, which will last for several months. The grocery retailer and its parent companies are facing €4.9bn in debt repayments due by 2025, though credit rating agencies question if these can be met.
Rating agency Moody’s downgraded Casino in late May, saying that a default over the next 12 months remained likely given the retailer’s weak liquidity position and “unsustainable” capital structure.
Stakeholders in the proceedings were on Wednesday asked by Casino to submit new equity offers by July 3 “at the latest” in order to reach an agreement on the terms of the restructuring by the end of the month. The agreement will have to include an equity contribution of at least €900mn, Casino said.
Two potential new money offers have emerged in recent months. One, led by Czech billionaire Daniel Křetínský, would inject €1.1bn into the company. A trio of prominent businessmen — tech billionaire Xavier Niel, banker Matthieu Pigasse and retail entrepreneur Moez Zouari — are expected to forward a separate proposal.
The fate of France’s sixth-largest food retailer by market share hangs in the balance, along with the roughly 53,000 employees it has in France, with more globally. Casino’s majority shareholder, Jean-Charles Naouri, is trying to preserve as much as he can of the company he spent years building via debt-fuelled acquisitions, but is expected to lose control of the group.
Casino said that a report prepared for creditors by auditor Accuracy did “not anticipate any liquidity issue until the end of the conciliation period” at the end of October.
However, in order to sustain this, Casino’s finances would need to be shored up with revenues from ongoing asset sales and a reprieve on payment of tax and social security obligations granted in principle by the French government. The conciliator also submitted a request for creditors to grant the company a standstill on all debt payments until the end of the negotiation period, the company said last week.
The announcement that the company planned to convert some of its secured debt took creditors by surprise. There had been “no indication” going into Wednesday’s meeting that Casino was about to announce an equitisation of its secured debt, said one of the group’s unsecured bondholders.
“There were some not so flattering words said to the other side,” the bondholder added. “It’s now going pear shaped really quickly . . . They are literally destroying every relationship they’ve ever had. Why would you continue negotiating with management?”
Casino is also treating its secured bonds and loans differently, with lenders in line for the equity swap whereas bondholders will get repaid from the proceeds of asset sales over time.
“The proposed debt-conversion-into-equity is even higher than we thought . . . [though] the exact magnitude of dilution for existing shareholders remains to be determined,” wrote Clément Genelot, analyst at Bryan Garnier.
“In all cases, Casino publicly admitted that Rallye would lose the control of Casino,” which would likely tip the four holding companies above the grocery retailer into bankruptcy, Genelot added.
Casino did not immediately reply to a request for comment.
Casino’s shares, which recovered slightly to close 32 per cent lower on Thursday, have almost halved since the start of the year, Refinitiv data shows.
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