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

S&P Global Ratings affirmed on Sept. 30 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 assigned a B rating
to the company’s planned Eurobond issue. The company’s rating affirmation was
based on its stable operating performance during FY2019 and was in line with
agency’s base case. Kernel will have executed large capital expenditures during
the next 12 months, in the agency’s view. And Kernel’s FOCF will remain
negative (about USD 160-180 mln) in FY2020, while its FOCF will return to
positive values by the end of FY2021, the agency said. Also, S&P
anticipates that Kernel’s adjusted debt to EBITDA ratio will be close to 4.0x
in FY2020.

The agency said it is unlikely to consider a rating
upgrade during the next 12 months, unless the company’s FOCF returns to
positive and adjusted debt to EBITDA ratio will be closer to 3.0x.

Andriy Perederey: Unlike Fitch, which recently upgraded Kernel’s
rating to BB- (two notches above sovereign level), S&P decided to keep
Kernel’s rating unchanged this time, even after it upgraded its Ukraine sovereign rating to B.
In this way, Kernel’s S&P rating, which was above sovereign until last
week, was made equal to it. While this “effective downgrade” leaves less
arguments for KERPW bonds to trade inside Ukraine’s sovereign curve, we remain
bullish on its bonds.