Ferrexpo loses attempt to claim higher losses from insolvent bank

A subsidiary of Ukraine’s largest iron ore pellet
exporter Ferrexpo (FXPO LN, FXPOLN) lost its case in the Kyiv Economic Court to
boost its claim against Finance & Credit bank to UAH 3.9 bln (USD 147 mln)
from UAH 485 mln (USD 18 mln). Recall on Sept. 17, 2015, Finance & Credit
Bank, which was controlled by Ferrexpo’s majority owner, Kostyantyn Zhevago, was declared insolvent.

In detail, the court ruled on Oct. 25 to reject the
claim by Ferrexpo Poltava Mining (FPM) because the UAH 3.4 bln (USD 128 mln) by
which FPM wanted to increase its claim against Finance & Credit bank were
in fact transferred by the bank in August 2015 to a special transit account.
The transfers were made in accordance with several suretyship agreements signed
by FPM the same month in relation to various loans provided by Finance &
Credit bank to third-party companies controlled by Zhevago.

Ferrexpo stated in its 1H17 financial release that its
three Ukrainian subsidiaries, including FPM, were working on increasing the
claim amounts by a total of UAH 3.7 bln (USD 143 mln).

Dmytro Khoroshun: It had been
long expected that Ferrexpo would not be able to recover the money it had with
Finance & Credit bank. However, the information in the court ruling raises
the question of why FPM decided to sign in August 2015 the suretyship
agreements that guaranteed the loans of companies outside the Ferrexpo group.
We think that these decisions were not in the best interests of either FPM’s or
Ferrexpo’s shareholders.

Nevertheless, pragmatically, during
August-September 2015, it was probably already clear to the parties involved
that Ferrexpo would never be able to recover its deposits with Finance &
Credit bank, which had probably been highly illiquid long before it was declared
insolvent. Therefore, FPM’s decisions to pledge these deposits via the
suretyship agreements were of little practical consequence to Ferrexpo.