French hypermarket group Casino has lost its investment grade credit rating with Standard & Poor’s after its long term debt ratings were cut by one notch to BB+.
S&P said the rating action reflected the group’s “substantial drop in earnings, with reported EBITDA down by 26% and trading profit down by 35%”.
“Although we expect some recovery and improved profitability in France, we don’t think this will be strong enough to offset the severe operating weakness in Brazil, which we see continuing throughout 2016,” S&P said.
Casino has disposed of its stake in Big C in Thailand and is currently pushing a sale process for its Vietnam operations to reduce gross debt.
S&P said that while these disposals will reduce debt, the disposals will “reduce the group’s scale and diversification, and thereby increase the reliance and exposure of the group even more to Brazil and France.”
Casino shrugged off the downgrade, saying it would only result in a “slight increase” in debt payments and has no effect on its liquidity. It estimated the impact on its bond debt would be less than €20m before tax in 2016 excluding future bond buybacks.
The hypermarket chain also added that it has had its BBB- ratings confirmed by Fitch Ratings, with Fitch highlighting Casino’s improvement in the financial structure thanks to the ongoing deleveraging plan.
Casino added: “The group reaffirms its operational prospects, mainly focused on a profitable growth in France and on the consolidation of its leadership in Latin America where the development of its activities is based on both retail and commercial real estate.”
Analysts at Bernstein said the downgrade was on the cards since S&P moved Casino to negative watch in January and therefore “we don’t think this announcement will surprise the markets”.
“With the rating agency downgrade now behind them Casino will be able to focus on deleveraging and potentially buying back minority stakes in Latin America,” Bernstein said.