Court requires Zhevago to pay UAH 1.5 bln debt to central bank

A Kyiv district court ruled on Oct. 1 to require
billionaire Kostyantyn Zhevago to pay a UAH 1.54 bln debt to the National Bank
of Ukraine (NBU) owed by his bank, Finance and Credit. Zhevago, whose main
asset is a majority stake in iron ore miner and pellet maker Ferrexpo (FXPO
LN), offered his personal commitment to repay the refinancing loan gained in
2015, as reported by the NBU on its website on Oct. 2.

Finance and Credit Bank was declared insolvent in
September 2015 and Zhevago “failed to demonstrate his good faith to repay the
loan”, the NBU wrote. The NBU decided to file a lawsuit against Zhevago in
December 2015. Court hearings dragged on for almost 3.5 years, with the NBU
alleging the defendant did his best to delay the hearings. The NBU said it will
use all legal means at its disposal to collects funds from Zhevago as soon as
the court’s ruling comes into force.

Alexander Paraschiy: This was a
first-tier court ruling so it will come into force either if Zhevago won’t
appeal (which is unlikely), or an appellate court upholds the ruling. Such news
could have been ignored if not for last week’s report that Zhevago was declared a suspect in an embezzlement case
by the State Bureau of Investigations. That suggests there is political will to
prosecute him (or at least, there is no political will to prevent such
prosecution). If that’s the case, a appellate ruling could arrive much sooner (regardless
of the politics, there is little doubt that it will confirm the first-tier
court’s ruling).

The key question is what means the NBU will use to
recover UAH 1.54 bln from Zhevago, and whether this could affect Ferrexpo or
Zhevago’s ownership in it. In our view, there is little chance that it will
affect Ferrexpo: Zhevago has a lot of other assets in Ukraine that could become
more easy targets for the NBU, so the regulator won’t need to go to Switzerland
to try and claim Zhevago’s equity stake. In any case, Zhevago has enough time
to settle the dispute with the NBU without any harm to his property in Ukraine,
so we see little risks for Ferrexpo operations from this news.

Such a court ruling could become a precedent for other
debtors to the NBU that provided personal commitments under refinancing loans,
in particular Oleg Bakhmatyuk, the owner of Ukrlandfarming (UKRLAN) and
majority shareholder of Avangardco (AVGR LI, AVINPU). However, his case might
differ, as Bakhmatyuk (unlike Zhevago) publicly expressed his willingness to
settle his personally committed debt with the NBU.