Ferrexpo board finally ready to act on Zhevago risks

15 October 2019

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.

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