Casino Cancels Dividend to Conserve Cash After S&P Downgrade

(Bloomberg) -- Casino Guichard-Perrachon SA canceled a dividend to conserve cash after Standard & Poor’s cut its rating on the embattled French retailer’s debt further into junk territory.

Casino’s board decided to eliminate an interim payment this year at a meeting Tuesday, following the downgrade by Standard & Poor’s by two levels to B. The stock fell as much as 4.4% Wednesday morning.

The company’s dividend yield had increased to as much as 10%, one of the highest in its sector, as Casino shares have fallen over the past two years. Short sellers have bet against the stock amid concern that the grocer’s parent firms have too much debt and use opaque accounting to mask their true financial condition.

Rallye SA and the other holding companies entered a “safeguard” procedure in France last week, giving them a respite on paying back debt as they come up with a new plan to compensate creditors. The process allows the company at least six months to plan a debt restructuring.

S&P said it has concerns about Casino’s governance, given that Jean-Charles Naouri controls both Rallye and Casino as chairman.

“Mr. Naouri has an interest in maximizing dividend payments from Casino to service Rallye’s debt and receive dividends on behalf of Rallye rather than use them to deleverage at Casino,” S&P said. “The outcome could ultimately be at Casino’s expense, given it is the main asset and generator of virtually all profits and cash flows for the wider group.”

Rallye rose as much as 7.2% in Paris, erasing an earlier decline.

To contact the reporter on this story: Thomas Mulier in Geneva at tmulier@bloomberg.net

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, John Lauerman, Marthe Fourcade

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