S&P affirms B long-term rating, Stable outlook for Kernel

S&P Global Ratings affirmed on Apr. 17 the
long-term credit rating of Ukrainian sunflower oil producer and grain trader
Kernel (KER PW, KERPW) at B with a Stable outlook. It also affirmed a B issue
rating on the company’s outstanding Eurobonds. The affirmation of the company’s
ratings was based on its view of a more favorable business environment in
Ukraine. The agency’s Stable outlook reflects its view that the COVID-19
pandemic will not hinder Kernel’s export volumes. In the agency’s view, the
company will be able to stabilize its credit metrics and refinance its
Eurobonds due Jan. 2022 within the next 12 months.

S&P continues to forecast Kernel’s negative free
operating cash flow (FOCF) for this year, but a lesser amount than it
previously anticipated. Also, S&P anticipates that Kernel’s adjusted
debt-to-EBITDA ratio will be close to 3.5x-3.8x in FY2020 vs. its previous 4.0x
forecast. Also, Kernel will generate positive FOCF in FY2021, with adjusted
debt-to-EBITDA of 3.0x-3.5x, in the agency’s view. If the company’s adjusted
debt-to-EBITDA moves closer to 3.0x, the agency could consider raising Kernel’s
ratings.

Andriy Perederey: The key point of Kernel’s rating affirmation is the expectation of
FOCF returning to positive in the next year, which caused (would cause?) the
company’s improving debt metrics and ability to refinance USD 500 mln in
Eurobonds by January 2022. Kernel’s S&P rating is equal to Ukraine
sovereign, while its KERPW bond trades above the sovereign curve, which allows
us to maintain our neutral view on KERPW bonds.