Fitch revises rating outlook for Kernel to Positive

Fitch Ratings revised the outlook on the long-term
foreign and local currency issuer default rating of Kernel (KER PW, KERPW) to
Positive from Stable on Sep. 15 and affirmed the company’s rating at BB-. The outlook
revision reflected the agency’s expectations about Kernel’s “conservative
capital structure” after the completion of its expansion program in FY2022 and
its “improved product diversification and a record of financial discipline”
that “points to a strengthening credit profile”.

Also, the agency estimates that Kernel’s EBITDA has
reached USD 690 mln in FY2021 (up 56% yoy), supported by the trading,
infrastructure and farming segments. Fitch analysts expect that the high EBITDA
will translate into positive free cash flow despite high CapEx in FY2021 that
allows Kernel to avoid a temporary hike in its leverage and smooth the impact
of the remaining expansionary spending planned for FY2022 on its leverage
profile over the next two years.

On the other hand, the agency expects the
“normalization” of the company’s profits in trading in FY2022-FY2024, which
“together with a recovery of margin in the oil division should result in
sustainable annual EBITDA at around USD 400 mln”.

Andriy Perederey: Kernel’s
rating update is based on Fitch’s expectations of improved segment
diversification and a conservative capital structure with smooth impact of the
planned expansionary CapEx in FY2022. We estimate that Kernel’s EBITDA reached
USD 738-749 mln in FY 2021 (7%-9% above Fitch’s estimate). Also, we agree with
the agency’s view that the trading, infrastructure and farming segments will be
key drivers of Kernel’s EBITDA in FY2021-FY2022 and the company’s leverage will
be at safe levels the mid-term. Our view on KERPW bonds remains neutral.