Ferrexpo auditor resigns after failing to exonerate CEO from charity links

Deloitte, the auditor of Ukraine’s largest iron ore
pellet exporter Ferrexpo (FXPO LN), resigned from its office as statutory
auditor, the company reported in its Apr. 26 release.

Recall, Ferrexpo had to delay the publication of its results
because of a review of Blooming Land, a Ukrainian charity that was responsible
for coordinating Ferrexpo’s corporate social responsibility program.

Dmytro Khoroshun: We presume
that Deloitte’s resignation as Ferrexpo’s auditor is related to the Blooming
Land scandal, and note further risks if this affair attracts the attention of
regulators in the U.K. or Switzerland. As discussed in the company’s 2018
results, Ferrexpo’s board of directors has formed a unanimous view that
Kostyantyn Zhevago, Ferrexpo’s CEO and majority owner, does not have
significant influence or control over Blooming Land, and that Blooming Land is
not an undeclared related party.

But the very fact that such questions of possible
undeclared links between Blooming Land and Zhevago are being asked poses
substantial risks that viewpoints other than the one currently held by
Ferrexpo’s board will be formed. Furthermore, in its auditor’s report contained
in Ferrexpo’s 2018 results, Deloitte said that it was unable to conclude
whether or not Zhevago had significant influence over Blooming Land.

Looking forward, we think that if Ferrexpo board
members start changing their opinion, or if the U.K. or Swiss regulators start
questioning the links between Blooming Land and Ferrexpo/Zhevago, then the
company might face further troubles. We reason that if Zhevago was able to
prove he was not related to Blooming Land, he could have done so already at the
stage of Deloitte’s inquiry, preventing the auditor from resigning.