Daniel Kretinsky steps in with loans to Casino supermarket parent

Monday 2nd March 2020

Czech billionaire Daniel Kretinsky has stepped into the high-stakes restructuring of heavily indebted Rallye, the parent company of French supermarket group Casino, by effectively bailing it out from a problematic derivatives deal.

The investor, who owns 5.6 per cent of Casino, has agreed to provide up to €233m in loans to take the place of complex derivative arrangements with banks at Rallye, one of a chain of holding companies through which Casino's chief executive Jean-Charles Naouri controls the group.

Those derivatives were important because they were the only part of Rallye's financial liabilities that were not covered by an debt restructuring process under way in French court. Judges approved a repayment plan on February 28 that will give Rallye about 10 years to pay back €2.9bn in debt.

To secure the four-year loan extended by a vehicle called EP Investment, Mr Kretinsky has required that about 9.5m Casino shares be placed in "a fiduciary trust", effectively serving as collateral if Rallye runs into problems in the court-sanctioned debt restructuring process.

The arrangement was disclosed on Monday by Rallye, which owns 51 per cent of Casino and is itself controlled by Mr Naouri. The 70-year-old "godfather of French retail" stunned corporate France last year, when he put the four heavily indebted parent companies of Casino into a court-administered "procédure de sauvegarde" in May.

Despite the troubles of its main shareholder, Casino was able to bolster its own balance sheet last October, raising €3.8bn of new bonds and loans to shore up its finances. The retailer's shares were little changed on Monday. Rallye's shares, which are still trading despite the debt restructuring process, are down 20 per cent in 2020.

Mr Kretinsky first disclosed his investment in the French food retailer in September after he and an associate used a vehicle called Vesa Equity to build a stake of 4.6 per cent. He and Mr Naouri have sought to signal that the investment is amicable, with the latter offering the former a seat on the board of directors after the next shareholders' meeting.

In January, Mr Kretinsky disclosed he had added to his position and now owned 5.6 per cent of Casino, making him the second-largest shareholder after Mr Naouri's vehicles.

The arrangement on the derivatives also means Casino itself will not be required to pay dividends in the coming years to pay back the Rallye derivatives, something which had worried analysts.

Fabienne Caron, an analyst at Kepler Cheuvreux, said the arrangement with Mr Kretinsky was good news for Casino, because the company itself would not be under pressure to pay dividends next year to reimburse Rallye's derivatives.

"He saves Naouri who had a big problem with the derivatives, but he does so with a structure that will benefit him greatly if something goes wrong with the court process," she explained. "He would effectively get a big chunk of Casino shares at a very attractive price."