Muddy Waters Tweet Sends French Grocer Casino to 22-Year Low

(Bloomberg) -- The battle between French retailer Casino Guichard-Perrachon SA and the skeptics is heating up again.

Casino shares slumped as much as 17 percent, touching a fresh 22-year low, after short-seller Muddy Waters Capital LLC tweeted that the grocer hadn’t published financial accounts as required for one of its subsidiaries.

A Casino spokesman dismissed the missing filing as the result of a technical delay, but not quickly enough to calm investors in a company that’s already been targeted for its complicated finances and worrying debt load.

The stock’s plunge shows just how skittish investors are about the company because of concerns about the debt levels of Casino and its parent, Rallye SA, as well as a difficult operating climate for French retailers. The shares slumped this month after analysts at Sanford C. Bernstein & Co. and Credit Suisse criticized Casino’s finances. A rout in emerging market currencies hasn’t helped, because the company gets more than 40 percent of its revenue from Latin America.

Casino said it fully discloses all relevant information, and the company is in the middle of a “highly successful turnaround.”

Casino slumped 10 percent to close at 27.31 euros in Paris, valuing the company at 3 billion euros ($3.5 billion). The stock has plunged 46 percent this year.

Muddy Waters, the firm run by short seller Carson Block, disclosed a bet against the stock in 2015, and other bears have piled in since. Almost a third of the company’s shares available for trading -- excluding Naouri’s stake -- have been sold short, the highest among European grocers, according to data compiled by IHS Markit Ltd.

Rallye Debt

A lack of transparency regarding the sale of a Brazilian subsidiary -- which the company says has been "advancing" without offering further detail for almost two years -- hasn’t helped matters. In this context, critical analyst note or tweet is often enough to send some shareholders running for the exits.

The share price decline has put further pressure on Rallye, the publicly traded company through which Jean-Charles Naouri, Casino’s chairman and chief executive officer, controls Casino. Rallye needs to repay at least 670 million euros of bonds in October and 300 million euros in March. The more Casino’s shares fall, the less room Rallye has to maneuver, since its credit lines require it to pledge Casino shares as collateral.

The accounts for the Casino Finance subsidiary will be visible next week, the Casino spokesman said by email. The information is already available in Casino’s consolidated accounts, so the lack of a filing shouldn’t have caused such a reaction, the spokesman said.

Casino was quicker to shift its portfolio away from the troubled hypermarket format than its rival Carrefour, shrinking its sprawling suburban box stores by ceding space to specialty retailers so it could focus on groceries.

A successful network of convenience stores in Paris as well as the premium brand image of its Monoprix unit have helped to insulate it from a long-running price war in France’s fiercely competitive grocery market, but the battle is far from won: closely-held competitor E. Leclerc, known for its low prices, is ramping up its e-commerce efforts as well as opening new stores in the key Paris region.

Casino shares got a slight boost in June when the company announced it would sell 1.5 billion euros worth of real estate in order to reduce its debt load. But the company has declined to clarify which assets it plans to sell and who might be the potential buyers.

Rallye’s 300 million euros of bonds due in March plummeted 9 cents on the euro on Friday to 80 cents, the lowest in more than two years, according to data compiled by Bloomberg. Credit-default swaps insuring Rallye’s bonds against default for one year jumped to the equivalent of 3,508 basis points, the highest on record, data from CMA show. An increase signals deterioration in perceptions of credit quality.

“There’s a confluence of factors weighing on Casino,” said Steven Logan, the London-based global head of high yield at Aberdeen Asset Management. “The depreciation of emerging market currencies in Brazil and Colombia is one of them. At Rallye there’s definitely the potential for a liquidity crunch in the fourth quarter if the company can’t access credit lines.”

Casino’s bonds also declined on Friday with the company’s 723 million euros of notes due January 2023 falling 4 cents on the euro to 90 cents, the lowest since February 2016, Bloomberg data show.

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