S&P raised credit ratings on Kernel upon report publication

S&P Global Ratings, an American credit rating agency and a division of S&P Global, raised its long-term issuer and issue credit ratings on Kernel Holding S.A., and its existing senior unsecured notes, to 'B+' from 'B'. The agency also assigned its 'B+' issue rating to the company's proposed senior unsecured notes.

"Kernel Holding S.A. posted stronger-than-expected results for the financial year ending June 30, 2020 (FY2020), with positive free operating cash flow (FOCF) and adjusted leverage of about 3.0x, thanks to a rebound in sunflower oil prices and increased grain export capacity," the agency says in a statement.

S&P forecasts weaker credit metrics in FY2021, with negative FOCF of up to USD 45 mln-USD 55 mln and adjusted leverage metrics of around 3.4x-3.6x, as the company completes its multi-year capital investment program; metrics is viewed by the agency as supportive of a higher rating.

"We view positively that the group is launching new senior unsecured notes to refinance notes due in January 2022, thus improving its debt maturity profile," the report reads.

It is noted that Kernel passed successfully S&P's sovereign stress test, which allows it to rate the company one notch above the foreign currency sovereign credit rating on Ukraine ('B').

S&P anticipates ongoing capacity investments to continue to bolster revenue growth of up to 6%-8% in FY2021-FY2022.

"We forecast that margins will moderate, however, in FY2021 to below 10%, primarily reflecting the likely lower harvest, following less favourable weather conditions in the summer in central and eastern Ukraine; lower yields; and higher grain trading needs. Credit metrics could also exhibit volatility from Avere's trading operations," S&P adds.

Pursuant to the agency's estimates, with total planned capex of about USD 255 mln-USD 260 mln, negative FOCF is forecasted of up to USD 50 mln-USD 60 mln and adjusted debt to EBITDA of about 3.4x-3.6x in FY2021.

The COVID-19 outbreak should have a limited effect on the group's performance, as Kernel maintained fully functioning operations during the lockdown restriction measures implemented earlier in the year. It is noted that exports remain intact, with steady demand across key exports markets thanks to the stability of the wider consumer staples industry.

As a reminder, Kernel reported USD 123 mln of net profit in FY 2020, 31% lower YoY (FY 2019: USD 179 mln).

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