Fitch affirmed Kernel at 'BB-' with Stable Outlook

American credit rating agency Fitch has affirmed Kernel Holding S.A.'s Long-Term Foreign- and Local-Currency (LC) Long-Term Issuer Default Ratings (IDR) at 'BB-'. The Outlook is Stable.

"The affirmation reflects our expectations that Kernel will maintain a high share of export profits (FY20: 95% of EBITDA), and continue proactively refinancing upcoming debt maturities. Combined with its commitment to maintain a conservative capital structure and the current stability in Ukraine's operating environment, this should support resilience of Kernel's credit profile," the message reads.

The agency expects Kernel to post record-high EBITDA in FY20 (ending June 2020) of USD 412 mln, driven by a record sunflower seeds harvest in Ukraine and higher average sunflower oil prices in the year. This will result in above USD 90 EBITDA per ton in FY20 in the core oil segment vs. USD 62 in FY19. Profits are also expected to be supported by the strong contribution of Avere trading and healthy margins in farming.

Fitch projects the profitability in the core oil segment to normalise toward USD 60 to USD 75 per ton in FY21-23, resulting in lower segment EBITDA. Nonetheless, profits should grow in FY22-23 supported by new capacity launches and efficiency initiatives.

Dividends are set between USD 20 and USD 40 mln in FY20-23.

It is noted that Kernel continues to reduce its reliance on a single commodity, sunflower oil, with growing grain trading operations (primarily corn, wheat and barley).

"The oilseed processing segment contributed only 34% of the group EBITDA in FY20 (based on preliminary reported figures; before unallocated costs) compared with 40% in FY16," the agency specialists comment. "We estimate that the share of sunflower oil in the group's EBITDA will remain below 35% in FY21-23."

As a reminder, the capitalization of Kernel for the period of September 10-16, 2020, increased by 3.4% to USD 867 mln.