Kernel issues 5Y, 8.75%, USD 0.5 bln Eurobond, discusses plans
25 January 2017
Ukraine’s largest sunflower oil producer Kernel (KER PW) announced on Jan. 25 it has successfully issued its five-year, USD 500 mln Eurobond with a coupon rate of 8.75% and a maturity date on 31 January 2022. The Eurobonds are expected to be rated B+ by Fitch, two notches above the Ukrainian sovereign, and B by S&P, one notch above sovereign.
Two days earlier, Kernel CEO Andriy Verevskiy said during a conference call with investors that the Eurobond proceeds will be used to refinance outstanding one-year, pre-export credit facilities. Following the Eurobond placement, the company also plans to purchase an oilseed crushing plant and increase its land bank by about 200,000 ha.
Also, as part of its investment program, Kernel intends to increase the annual grain throughput capacity of its BSI terminal from 4 mmt to 8 mmt, which will require USD 120 mln of CapEx, with USD 40 mln to be spent already in 2017. The overall cost of the investment program is estimated by Kernel at around USD 470 mln.
The estimated annual crushing capacity of the oilseed crushing plant is envisaged to be 1.0 to 1.5 mmt and can cost up to USD 200 mln. Verevskiy also pointed out that the profitability margins in the oilseed crushing business have decreased in recent seasons as total crushing capacities in Ukraine, estimated at 18.6 mln, exceed the total harvested volume of sunflower seed in Ukraine. (An all-time record of 13.7 mmt was harvested this year in Ukraine).
For this reason, Kernel expects the consolidation of the crushing industry, although acknowledges that many owners of the crushing plants in Ukraine are not ready so far to sell their assets, despite the fact that many are not profitable. During the call, Kernel also said it is interested in purchasing the assets of Ukrainian agricultural holding Mriya (MRIYA).
On Jan. 24, Mriya announced that it has received preliminary indicative acquisition offers for all or part of its business (without specifying who sent the offer), but the struggling company rejected these offers. However, Mriya said it would allow the potential buyers to conduct an additional audit of its assets, after which the offers could be either reformulated or withdrawn.
Igor Zholonkivskyi: Although we initially expected Kernel’s Eurobond placement at a lower yield in the 6.5-7.5% range owing to expected higher-than-sovereign ratings, we think the 8.75% yield is reasonable for the debut bonds in the current market environment.
We view extending the credit maturity structure through Eurobond refinancing as positive since Kernel will be better positioned to proceed with its investment program, which should result in incremental annual EBITDA of around USD 100 mln, based on Kerne’s estimates.
Although Mriya did not reveal the identity of the potential buyer, we think it’s highly probable that Kernel will continue actively negotiating with Mriya, as well as other agricultural companies, regarding asset acquisition.
