France’s Top Stock This Quarter Threatened by a ‘Damocles Sword’

(Bloomberg) -- Casino Guichard-Perrachon SA’s parent companies may remain under creditor protection, but their difficulties have done little to halt the French grocer’s recent share-price revival.

Casino is by far the top performer on France’s SBF 120 Index this quarter, rising 48% on speculation of a takeover bid by domestic peer Carrefour SA, the potential sale of its Leader Price chain and the entrance as an investor of Czech billionaire Daniel Kretinsky. Yet some analysts warn that the party may not last.

A draft plan by parent companies including Rallye SA to reschedule debt over 10 years means financial pressure on the retailer will continue amid an “unhealthy link” between Casino and Rallye, according to Clement Genelot, an analyst at Bryan Garnier.

The proposed arrangement would be “a Damocles’ sword hanging” over Casino, Genelot wrote in a note on Thursday. According to Kepler Cheuvreux analysts, the French grocer would need to pay an annual dividend of at least 660 million euros ($723 million) from the third year of the plan to enable all debt to be repaid on schedule.

The draft entails a maximum of 65% of debt being repaid in the 10th year of the program, which “could trouble some investors and give further ammunition to short sellers,” Genelot said.

A Casino representative declined to comment.

Casino’s Game of Chicken: Short Sellers Persist as Stock Up

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To contact the editors responsible for this story: Beth Mellor at bmellor@bloomberg.net, Paul Jarvis, Jon Menon

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