OREANDA-NEWS. Casino Guichard-Perrachon's EUR3.1bn deal to sell its 58.6% stake in Thai food retailer Big C Supercenter accelerates the group's deleveraging and supports Fitch Ratings' view that Casino will bring leverage down to a level more consistent with its 'BBB-' rating, balanced by weaker geographical diversification.

The transaction should reduce the group and Casino holding company debt by up to EUR3.3bn, including Big C's around EUR250m of net debt. The proceeds should also allow proportionally consolidated funds from operations net leverage to be significantly reduced towards the 3.6x-4.0x range that would be consistent with a 'BBB-' IDR, by end-2016.

The proposed disposal underlines Casino management's commitment to an investment-grade rating, reinforced in early 2016 by its decision to increase the disposal programme to EUR4bn from EUR2bn. We view the plan as broadly positive for Casino's credit profile and believe the enlarged programme will mitigate the high legacy and group capital structure imbalances we highlighted in our most recent rating action on 17 December 2015. As the Big C Thailand stake is held by Casino's holding company, we expect this transaction to address and reduce the sharp divergence between the parent company's leverage (including 100%-owned entities) and the group's proportionally consolidated leverage, by reducing holding-company debt.

The disposal multiple agreed is reasonably good and in line with those in other southeast Asian food retail transactions. Casino is also discussing other disposals, such as of Big C Vietnam and other non-core assets.

The Big C Thailand disposal will reduce Casino's proportional consolidated EBITDA by around EUR200m in 2016. The profit contribution from Casino's French operations will therefore become more critical to the group's overall ability to meet its financial commitments in the medium term.

The group's geographical diversification will reduce but it will maintain key market positions in France, Brazil and Colombia. We expect Casino France's profits and cash flows to significantly increase in 2016 despite strong competition in the French food retail market, due to successful price repositioning, the benefits from announced purchasing partnership agreements, network refurbishment and a mildly improving trading environment. This should enable 2016 EBITDA to trend towards EUR1bn for the year; 1H16 figures will be a key indicator of whether the group is on track.

The planned sale is part of a wider trend among European retailers to refocus on their historical, mature markets, balanced by a presence in a smaller number of emerging countries. Deleveraging among certain other retailers is likely to be slower than for Casino, as they have largely completed their main targeted asset disposals, so further deleveraging will come from operating turnarounds in their core markets.