Ferrexpo board finally ready to act on Zhevago risks

The board of directors of Ukraine’s leading iron ore
pellet exporter Ferrexpo (FXPO LN) issued on Oct. 14 a statement that it’s closely
monitoring the criminal investigations of its chairman, Kostyantyn Zhevago, and
assured the public it “will take any actions that are needed in the interests
of all shareholders.” At the same time, the board one more time reiterated
Zhevago’s comment that he “denies any allegations of wrongdoing.”

Recall, Zhevago was put on a wanted list in Ukraine by
the State Bureau of Investigations (DBR), the DBR head said on Oct. 9. The DBR is
investigating Zhevago’s possible involvement in the embezzlement of USD 113 mln
from the Finance & Credit (F&C) bank in 2015. In the latest news on
Oct. 11, the Specialized Anti-Corruption Prosecutor’s Office wrote on social
media that Zhevago is suspected in another crime, declaring false information
in his electronic declaration while being a member of parliament. The harshest
penalty under this crime is three-year imprisonment.

Even more, journalist Sonya Koshkina wrote on her blog
on Oct. 10 that Zhevago, as well as former MP Serhiy Pashynskiy (arrested last week) and former
President Petro Poroshenko, were chosen as top priorities for investigations by
law enforcement bodies, according to two anonymous sources. The key criteria
for their selection were “it should be done quickly and the public will like
it,” Koshkina alleged.

Alexander Paraschiy: The news
flow confirms Koshkina’s allegation that Zhevago has been chosen as a
comfortable target for being convicted quickly in Ukraine, to the public’s
appreciation, along with Pashynskiy. Notably, commenting on Pashynskiy’s
arrest, President Zelenskiy said on Oct. 10: “Ask 100 people on the street
whether Pashynsky is a bandit. I am sure that 100 will say yes.” We believe the
same applies to Zhevago, with the overwhelming majority of the public disliking
him and being pleased to see him convicted and sentenced. While the criteria
listed by Koshkina don’t fully conform with Western norms of rule of law, they
do not mean Zhevago is innocent.

The quick completion of investigation was possible
because Zhevago’s wrongdoings were easy to prove. And the reason law
enforcement bodies were slow in investigating Zhevago’s case earlier was the
fact of the different fragments of the case being analyzed by different law
enforcement bodies, as top government official explained to us. They were later
consolidated under the DBR.

Taking into account all this, we believe that Ferrexpo’s
board took the right step by mentioning the interests of all shareholders and
by acknowledging that certain actions might need to be taken in the future in
relation to the situation around Zhevago. We continue to believe that an
adequate reaction to the recent developments will be moves to make Ferrexpo’s
governance more autonomous of Zhevago. Strong and independent corporate
governance at Ferrexpo will simply add value to the company by decreasing
execution risks, without undermining Zhevago’s stance as the majority owner and
the CEO.