Casino slumps as S&P says it may downgrade credit to junk

S&P put Casino's long-term 'BBB-' and short-term ‘A3’ debt ratings on credit watch, adding that it could cut the long-term ratings by up to another two notches. It attributed the move to weak trading in Brazil and a high level of debt.

"The creditwatch placement reflects our view that, notwithstanding management's plans to sell assets to reduce debt at the Casino level, the group's profitability will continue to be fairly weak for an extended period of time and its debt levels, primarily located at the French operations, too high," said credit analyst Raam Ratnam.

Casino said on Monday that it will actively engage with S&P to discuss in full transparency its strategy, confidence on its business prospects and its de-leveraging plan.

The group pointed out that the move by S&P followed the publication of its fourth quarter sales and came amid rising concerns over the macroeconomic situation in emerging markets and the recession in Brazil.

Casino insisted that the 'credit watch' had no impact on its financing or its liquidity position, adding that the availability of its existing credit facilities was not contingent on its credit rating.

The company said its liquidity was strong, it expects to report a significant cash position at year-end 2015 and its resources comfortably cover all its upcoming repayments beyond 2017.

The attempt to reassure investors and convey a commitment to its investment grade credit rating did little to lift the stock, however, which at 1150 GMT was trading down 7.3% to €37.10.

Societe Generale, which rates the stock at ‘hold’, said “undoubtedly the group needs to reverse the negative earnings per share trends seen over the last three years”.

Casino shares have been under pressure recently following damning reports by Muddy Waters Research.

The research firm, founded by renowned short-seller Carson Block, said in December that Casino was “one of the most overvalued and misunderstood companies” it had ever come across.

“We are short shares of France-based retail conglomerate Casino because their value could be as little as €6.91 per share, which is 86.2% lower than its last close,” Muddy Waters said.

It added that it was also short Casino’s credit and shares of Casino’s parent and largest shareholder, Rallye, because it values them at zero.

The research firm said the basic problem with Casino is that its financial statements are “literally meaningless” to understanding the company’s poor health, as they do not distinguish between what Casino owns and what it owes.

“Casino’s financial statements greatly mislead investors about the value of Casino’s equity. Casino management then obfuscates and refuses to release key clarifying information, thereby continuing the misperception of value that is clear to insiders."