Ferrexpo CEO faces indictment

Kostyantyn Zhevago, the CEO and majority owner of
Ukraine’s largest iron ore pellet exporter Ferrexpo (FXPO LN), was ordered to
visit on Sept. 27 the State Bureau of Investigations (DBR) for questioning and
to receive a notice of suspicion, according to a subpoena dated Sept. 23 posted
on Ukraine’s Prosecutor General’s website.

No details were provided about the criminal case
against Zhevago. Recall, in early August the DBR revealed it was investigating a member of parliament for possible
involvement in embezzling USD 113 mln from the
Finance & Credit (F&C) Bank that was declared insolvent in the autumn of 2015.
Media reports said that the MP under investigation was Zhevago, the former
controlling owner of F&C Bank.

Recall, Zhevago lost the parliamentary
elections in July together with his political immunity.

Dmytro Khoroshun: The
situation is very uncertain, given the recent drastic changes in Ukraine’s
political landscape.

If Zhevago is convicted, such a precedent would create
a stark contrast, suggestive of selective prosecution, to the situation
involving the much larger case of Privatbank. Recall, the agenda of the current discussions around Privatbank
includes the possibility of the state seeking some sort of compromise –
possibly even a compensation of sorts for Privatbank’s nationalization –
with its former owners, rather than opening criminal cases in relation to
possible numerous embezzlements. Just or not, the Ukrainian politicians
currently in power might be reluctant in establishing such a precedent in
relation to banks that failed during the past several years.

Conversely, for parties outside Ukraine, such as the
country’s international creditors, making the case against one owner of a large
bank that failed – and resulted in substantial losses to the Ukrainian state – might
be the first step in a process that could ultimately target the former owners
of Privatbank.

For Ferrexpo shareholders, it would be crucial to
see the company’s board exercise strong corporate governance and proactively
inform the market about its plans. We expect that Ferrexpo’s board is up to the
task, having just finished the Blooming
Land review via
an independent committee.