Kernel accounts frozen in Switzerland, media report

A first-tier court in Geneva ruled to freeze the
accounts of Kernel Holding S.A. (KER PW, KERPW) in Switzerland, Russia’s rbc.ru
news site reported on Feb. 3, citing its source in UBS. The freezing order was
made on the claim of the Stadnik family, which sold its farming assets (Stiomi
Holding) to Kernel. Kernel did not comment on the issue as of early Feb. 5.

Kernel indicated in its corporate reports it entered
into agreement to acquire Stiomi Holding in 2012, paying USD 33.47 mln to the
sellers, which was 40% of the estimated net asset value of the target. A final
payment, which Kernel failed to make, was due “only after the fulfilment of
certain conditions,” Kernel reports state. The sellers then sued Kernel in
various international courts. As of end-September 2019, Kernel formed USD 32.42
mln in provisions to address the legal claims related to this case.

Alexander Paraschiy: The news flow suggests Kernel has lost its legal battle with the
Stadnik family, and will be forced to pay its members up to USD 50 mln. We see
no challenge for the company to make that payment. Therefore, we do not see any
risks for Kernel related to this case. As Kernel has provisioned for most of
the potential award, there should be little effect from the case on Kernel’s
P&L. We are keeping our neutral view on KERPW bonds.