KYIV. July 25 (Interfax-Ukraine) – S&P Global Ratings has affirmed its ‘B’ long-term corporate credit rating on Kernel Holding S.A., a Ukraine-based producer and exporter of sunflower oil and grains, the outlook remains stable, reads a report on the rating agency’s website.
“At the same time, we affirmed our ‘B’ issue rating on Kernel’s five-year $500 million eurobond maturing 2022. Our affirmation reflects mainly that, despite Kernel’s acquisition of Ukrainian Agrarian Investments SA (UAI), its credit metrics are still in line with our projections when we assigned the ratings in January. Our previous base case already incorporated an acquisition of that magnitude, which largely explains why there is no impact on the group’s financial ratios. From a business perspective, the UAI acquisition has transformed Kernel into the largest land bank operator in Ukraine, with more than 605,000 hectares. This will help Kernel significantly reduce its dependence on third-party raw materials,” S&P experts stated.
“Because Kernel’s business model is already vertically integrated, we are confident that, by adding these additional 192,000 hectares of high-quality land, the group will create cost synergies that we have not yet incorporated into our model. By strengthening its farming operations, the group should be able to somewhat smoothen the seasonality inherent to its processing operations. Moreover, the increasing number of silos will enable Kernel to expand its logistic territorial network. Despite all the positive aspects that UAI’s integration will bring to Kernel, we have not revised our assessment on the group’s competitive position,” the document reads.
“The acquisition has strengthened the group’s exposure to Ukraine, which we view as having a high-risk corporate environment. Nevertheless, Kernel has a leading market position in sunflower oil processing, which is a large industry in Ukraine thanks to soil and climate conditions, as well as the robust operating performance of the group’s farming division, which should benefit from UAI’s integration. Kernel’s vertically integrated operation continues to support efficiency and decreases, in our view, the volatility of the group’s profitability. UAI enjoys a similar profile in terms of structure of operations, with a modern and productive fleet of machinery and similar cluster organization, allowing fast decision-making. We also view positively that both entities withstood the country’s biggest economic and financial crisis in the past decade,” the agency experts said.
