Casino - baby steps in LATAM

All,

Please find our unchanged model here.

The announcement from GPA last night shows Casino taking further steps to rationalise their LATAM holdings. We have long maintained the key assets for Casino’s ambitions to deleverage are its LATAM assets. The process including various approvals and EGMs means GPA spin-off of its Colombian business is not likely to conclude until 2nd half of H1 2023. However, as much as this announcement has been anticipated, does it have any bearings on liquidity or covenants and what does it mean for our position?

The transaction:

- GPA are distributing 83% of the shares in Exito directly to its shareholders. This will leave GPA with a 13% share in Exito, Casino with a 34% share and a free float of 53%. Casino will also have an indirect holding via its 41% shareholding in GPA.

- Post the transaction, more than half of Exito will be free float. The shares will be listed on the NYSE via ADRs. We suspect to receive ADR level 2 status, there has to be 50% free float. We are seeking clarification on this point.

- Casino will hold its LATAM assets in three separate stakes. A 41% holding in GPA, a 41% holding in Assai (not in the diagram above) and a 34% direct holding (and a further 5.3% indirect via GPA) in Exito.

- This is a non-cash transaction. There will be no realisation of assets via this process, but potentially makes it easier for Casino to partially exit one or more of its LATAM assets.

- Timing is expected in the later part of H1 2023.

Motivation:

- The ultimate motivation for this transaction is to increase the equity value of Casino’s LATAM assets. Using the current free float share price of Exito, the value of GPA’s stake in Exito is greater than the overall value of GPA. A similar anomaly existed prior to the separation of GPA and Assai. However, as with the previous separation, no cash ever moved from LATAM to Casino France. In the short term, we do not expect any cash movement either.

- Another, less tangible benefit of the listing of Exito, is it separates out the Colombian business from GPA’s Brazilian business. The two businesses were operated largely autonomously with very little synergies. This move may make it easier to sell one or more of the assets. However, we caution that if any transaction was in the pipelines in the short to medium term, GPA/Casino would not be pursuing this separation.

Conclusion:

- This announcement doesn’t change our view of Casino France. There will be no impact on liquidity or potential covenant breach in September 2022 and March 2023.

- We envisage post the transaction, the combined valuation of Casino’s LATAM assets will increase. This may give some additional asset coverage, but given the equity holdings we do not expect increased borrowings on the back of any increase in value.

- This transaction has been expected for a while, but ultimately has very little bearing on the Casino France credit. It potentially makes asset sales in LATAM easier, but any timing is still likely to be in FY23 or FY24.

Positioning:

- We maintain our long 2027 bonds, short 2024 bonds in Casino France to position ourselves for tail risk of covenant breach or large LATAM asset sale over the coming months. The above transaction lessens the likelihood of an asset sale in LATAM in the short term, but we are happy to maintain the pair trade.

- We also maintain our 1% position in Rallye unsecured.

- We maintain our belief that the timeframe for Casino to deleverage has accelerated. In addition to the GreenYellow sale, we would envisage further asset sales during FY23 to further deleverage the Casino France structure.

- Ultimately, we had expected Naouri to try to time any asset sales with another debt reduction effort at Rallye. The GreenYellow asset sale is an acknowledgement that Naouri is no longer in full control of the timings and the covenant issues are now dictating the process.

Happy to discuss,

Tomás

E: tmannion@sarria.co.uk
T: +44 20 3744 7009
www.sarria.co.uk