Rallye SA shares pared losses after the company said it has no plans to raise capital following a plunge in the value of its stake in French supermarket operator Casino Guichard-Perrachon SA.
Rallye, a holding company controlled by Chairman Jean-Charles Naouri, is in no danger of breaching covenants tied to its bank loans and doesn’t plan to sell shares in Casino or otherwise raise capital, Deputy Chief Executive Officer Franck Hattab said in e-mailed comments relayed by a spokeswoman.
The comments come after the shares of both companies suffered from the recession in Brazil and plunge in that country’s currency, the real. Casino got 50.6 percent of its revenue last year from South America. The company in July agreed to sell its Libertad supermarket chain in Argentina and half its stake in Brazilian unit GPA to Almacenes Exito SA for 1.7 billion euros ($1.9 billion). Exito, based in Medellin, Colombia, is 54.8 percent owned by Casino.
“The company excludes any possibility of selling its stake in Casino to a competitor and seeks rather to expand in Brazil, because it considers that the Brazilian recession will be of a short duration,” Hattab said. Paris-based Rallye recently increased its stake in Casino to more than 50 percent, he said. It previously owned about 48.4 percent, according to Rallye’s website.
Rallye dropped 5.2 percent to 17.55 euros at 4:15 p.m. in Paris, bringing its loss in the past four sessions to 17 percent and giving the company a market value of 857 million euros. The stock declined as much as 9.5 percent Tuesday.
Casino rose 1.8 percent to 49.15 euros, paring its loss for the year to 36 percent. Naouri, 66, serves as Casino’s chairman and chief executive officer.
A covenant on Rallye’s bank debt requires the company to maintain shareholder equity of more than 1.2 billion euros, according to its 2014 annual report. At Dec. 31, shareholder equity stood at 1.75 billion euros, according to the report.
Credit analysts at Tullett Prebon said in a Sept. 11 note that the company is at risk of violating that covenant at the end of this year if Casino shares keep falling. After hearing from the company, Tullett followed up on Monday with a note saying Rallye was protected against a decline in Casino shares by its credit line, and the commentary from the company was “reassuring.”
Rallye shares dropped on Tuesday due to declines in currencies in emerging markets including Thailand and Brazil, said the spokeswoman, who asked not to be named in line with company policy.
The company had 1.9 billion euros worth of confirmed and unused credit lines at the end of June, Hattab said. There’s little risk of default in the short term because Rallye has only 389 million euros of debt coming due next year and none in 2017, he said.