Fitch Ratings has assigned Kernel Holding S.A.'s planned benchmark USD unsecured eurobond an expected rating of 'B+(EXP)', Fitch said in a press release on Tuesday.

Fitch Ratings has placed Kernel's Long-Term Local-Currency (LC) and Foreign-Currency (FC) Issuer Default Ratings (IDRs) on Rating Watch Positive (RWP).

The final ratings of the bonds are contingent upon receipt of final documents conforming to the information already received by Fitch.

Fitch said that Kernel intends to improve its debt structure by substituting its mostly short-term debt with a five-year benchmark Eurobond issue and/or new three-year PXF facilities. As a result, post-refinancing most of Kernel's current debt (approximately $600 million as of January 2017) would carry maturities of between three and five years and there will be sufficient, long-dated extra resources to cover working capital peaks.

Kernel's LC IDR is currently capped at 'B' by liquidity risks due to a high proportion of short-term debt and the company's dependence on one-year PXF facilities to fund seasonal procurement of sunflower seeds and grain. Should the refinancing complete successfully, we expect an improvement in Kernel's liquidity ratio to 1.5x-1.8x (0.8x as at end-September 2016). An enhanced financial flexibility would allow an upgrade of the LC IDR by one notch to 'B+'.

"We also expect to upgrade Kernel's FC IDR above Ukraine's Country Ceiling of 'B-' due to the improvement in the company's hard-currency external debt service ratio upon successful refinancing," Fitch said.

Assuming the refinancing of most of Kernel's current debt (approximately $600 million as of January 2017) with a five-year bond issue and new three-year PXF lines, Fitch expects Kernel's hard-currency external debt service ratio to be sustained above 1.5x for between 18 months and two years to be commensurate with ratings above the Country Ceiling by up to two notches at 'B+'. This would enable us to align Kernel's FC IDR with the LC IDR.

As reported, Kernel on Tuesday announced the company is conducting a roadshow for investors in the United States and Europe regarding a possible issue of eurobonds.

The eurobonds are to be issued in accordance with the 144A and Reg S rules, i.e. they will be available to U.S. investors with a maturity of five years and a fixed coupon rate.

Other parameters of the securities issue are not reported.

The shareholders of PJSC Poltava Oil Extraction Plant - Kernel Group at an extraordinary meeting on December 26, 2016 approved giving guarantees on the debut issue of eurobonds of Kernel Holding S.A. (Luxembourg).

The shareholders' decision indicates the volume of eurobonds issued is limited to the sum of $650 million, the interest rate is 10% per annum, and the circulation term is five years.

The company will also act as a guarantor for other Kernel Holding costs within the eurobond issue. The ceiling amount of such costs is estimated at UAH 17.1 million.

Kernel is the world's largest producer and exporter of sunflower oil. It is the leading manufacturer and supplier of agricultural products from the Black Sea region to world markets.

Kernel's share of the world's sunflower oil production is about 8%.