Kernel considers USD 650 mln Eurobond debut

The shareholders of Poltava Sunflower Oil, a subsidiary of Ukrainian sunflower oil producer Kernel (KER PW), approved a guarantee agreement for the issuance of debut Eurobonds at a shareholders meeting on Dec. 26, according to a company regulatory filing. The maximum amount of the Eurobonds is to be capped at USD 650 mln, with the coupon not exceeding 11% and maturity not longer than five years. A company representative told Concorde Capital that Kernel is currently evaluating different options for attracting financing in 2017, including the possible issuance of the debut Eurobonds.

Igor Zholonkivskyi: This move doesn’t come as a surprise to us as the company is aiming to double its grain exports by 2019 through greenfield construction of a 4mmt p.a. deepwater transshipment facility in Ukraine, which will require significant financial outlays. In FY2016, Kernel’s grain and infrastructure segment contributed EBITDA of USD 107 mln, which is 28% of the total.

In case Kernel does decide to proceed with the debut Eurobonds, we think it should not have particular problems with finalizing the deal, as the company has maintained a very healthy balance sheet. As of end-September 2016, the company’s net debt decreased 16% yoy to USD 326.2 mln, with its net debt/LTM EBITDA ratio at 0.87x. 

We expect the company to post solid profitability margins in FY17 on the back of a strong Ukrainian sunflower seed harvest in the 2016 calendar year, and we remain bullish on Kernel stock.