Ukraine court again allows arrest of Ferrexpo majority owner

Kostyantin Zhevago, the majority owner and former CEO
of Ukraine’s largest iron ore pellet exporter Ferrexpo (FXPO LN), was allowed
to be arrested, the censor.net.ua news site said on June 10. The report said
the decision was made that day by an investigating judge of the Pechersk
district court of Kyiv, citing Oleksandr Babikov, the first deputy head of the
State Bureau of Investigations (DBR) of Ukraine.

 

The Pechersk district court selected detention as a
pre-trial measure for Zhevago necessary for his arrest, according to a June 10
report by Interfax-Ukraine, which cited its anonymous sources in the DBR.

 

Recall, on May 25, an appellate court overturned
the first ruling to arrest Zhevago in absentia. That first arrest ruling was
related to a criminal investigation into the alleged embezzlement of USD 113 mln from the failed F&C Bank.
The appellate court said it based its ruling on Zhevago not having been placed
on international search by Interpol and, therefore, this necessary condition to
arrest him in absentia had not been met.

 

It is not clear at the moment whether Zhevago has been
placed on international search, and if not, whether the June 10 ruling to allow
for his arrest was proper under Ukrainian legislation.

 

The Pechersk district court was also going to consider
on June 10 a motion for arresting Zhevago’s assets, according to censor.net.ua.

 

Recall, on June 2, an appellate court ruled to
cancel a restriction on a 50.3% stake in Ferrexpo Poltava
Mining (FPM), Ferrexpo’s main production asset. The imposition of the
restriction on the FPM stake was related to the same criminal investigation
into the alleged embezzlement from the F&C Bank, as well as to a civil
lawsuit, Interfax-Ukraine reported on June 10, citing Ukraine’s State Deposit
Guarantee Fund’s response to the news agency’s request for information. The
cancellation of the restriction on the FPM stake was due to formal reasons,
according to the State Deposit Guarantee Fund, as cited by Interfax.

 

The Fund is considering pursuing civil lawsuits in
Ukraine and abroad against the suspects under criminal investigation as its
next step, Interfax-Ukraine reported. The Fund alleges that the total losses to
F&C Bank because of the possible criminal actions of the bank’s owners and
managers amount to UAH 12.7 bln (USD 477 mln), according to Interfax-Ukraine

 

Recall, in December the National Bank of Ukraine (NBU)
obtained an enforcement order to recover UAH 1.54 bln
(USD 60 mln) from Zhevago in relation to his personal commitment to repay an
NBU refinancing loan to F&C Bank.

 

Dmytro Khoroshun: We do not
rule out Ferrexpo finding itself negatively affected in some form because of
Zhevago’s legal troubles.

 

For example, Zhevago’s 50.3% stake in Ferrexpo plc
might become the subject of lawsuits by Ukrainian parties such as the NBU and
the State Deposit Guarantee Fund. The Ukrainian parties might seek to either
put restrictions on the stake, or to seize it to recover the damages allegedly
resulted from Zhevago’s actions.

 

Criminal proceedings against Zhevago might also become
a risk to Ferrexpo, because the businessman continues to advise Ferrexpo as a
director and remains its driving force, as the S&P rating agency noted in its June 2 report on the
company.

 

If these risks are realized, we believe the effects on
Ferrexpo might be quite negative. However, as of now, these risks seem remote
because their realization will require further substantial efforts from
Ukrainian state actors and, ultimately, the courts trying the allegations
against Zhevago and convicting him.

 

Namely, no court has tried the claims by the Fund
against Zhevago, and therefore seizures of Zhevago’s assets because of the
Fund’s allegations seem unlikely right away. Also, this second ruling allowing
for Zhevago’s arrest might later be found to be illegal, as with the first one.