You're reading: Fitch upgrades Ukraine’s Kernel and MHP on sovereign action

Fitch Ratings has upgraded Kernel Holding S.A.’s and MHP S.A.’s Long-Term Foreign Currency Issuer Default Rating (IDR) to ‘B-‘ from ‘CCC’, according to a report on the rating agency’s website.

“The rating actions follow Fitch’s upgrade of Ukraine’s Long-Term Foreign and Local Currency IDRs to ‘B-‘ from ‘CCC’. Ukraine’s Country Ceiling has been upgraded to ‘B-‘ from ‘CCC’,” according to the statement.

“The key rating drivers for Kernel Holding S.A. are as follows: Long-Term Foreign Currency IDR: upgraded to ‘B-‘ from ‘CCC’, Stable Outlook; Long-Term Local Currency IDR: upgraded to ‘B’ from ‘B-‘, Stable Outlook; National Long-Term rating: affirmed at ‘AA+(ukr)’, Stable Outlook,” the document states.

“Kernel’s Local-Currency IDR of ‘B’ is one notch above Ukraine’s Local-Currency IDR of ‘B-‘, reflecting the company’s limited reliance on Ukraine’s banking system and Fitch’s assessment that the company’s moderate dependence on the local operating environment is not prejudicial to its performance,” Fitch experts said.

“The key rating drivers for MHP S.A. are as follows: Long-Term Foreign Currency IDR: upgraded to ‘B-‘ from ‘CCC’, Negative Outlook; Long-Term Local Currency IDR: upgraded to ‘B-‘ from ‘CCC’, Negative Outlook; Foreign currency senior unsecured rating: upgraded to ‘B-‘ from ‘CCC’; Recovery Rating of ‘RR4’,” the report reads.

“The negative outlook reflects the weak liquidity position of MHP, its high FX and refinancing risks, tight headroom under its eurobond leverage covenant and a moderately aggressive financial policy. However, the ratings are supported by MHP’s flexibility over future dividends and expansion capex that provide some room for managing its free cash flow in view of forthcoming debt repayments,” the experts said.

“Both Kernel’s and MHP’s business profiles are strong for their ratings as both companies are market leaders in their respective sectors. However, the operating environment in Ukraine and liquidity and refinancing risks contribute to lower ratings than their international peers. The one-notch difference in MHP’s and Kernel’s Local-Currency IDRs is driven by MHP’s higher leverage, greater FX and refinancing risks and lower share of exports in revenue,” according to the posting.