Ukraine court restricts majority stake in Ferrexpo Poltava Mining

A Ukrainian court has placed a restriction on a 50.3%
stake in the shares of Ferrexpo Poltava Mining (FPM), the main production asset
of Ferrexpo (FXPO LN), the company said in a Jan. 31 statement.

 

Ferrexpo AG has appealed this court order, the company
said, adding that its board believes that the appeal should be successful given
the advice received that the order has no proper or reasonable basis under
Ukrainian law.

 

The restriction was imposed by Kyiv’s Pechersk
district court, according to the Interfax-Ukraine news agency, which cited
Ferrexpo’s press service.

 

The restriction does not affect ownership of the shares
but prohibits their transfer, Ferrexpo said. The company believes this
restriction is temporary and is in connection with ongoing matters in Ukraine
involving Kostyantyn Zhevago, its majority owner and former CEO, and one of the
businesses he owned until 2015 (Finance and Credit (or F&C) Bank),
according to the release.

 

Ferrexpo said that its operations remain unaffected
and continue as normal.

 

As of Sept. 30, 2019, Ferrexpo AG owned 100% of FPM’s
shares, according to FPM’s disclosures published by Ukraine’s securities and
stock market commission.

 

At the time the 1H19 financial statements were
published (August 2019), Zhevago held indirectly 50.3% in Ferrexpo plc (through
The Minco Trust, of which Zhevago is a beneficiary, and further through a Luxembourg
company, Fevamotinico), which owns Ferrexpo AG, according to Ferrexpo’s 1H19
interim report.

 

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

 

Earlier in December, a Ukrainian investigating judge allowed Zhevago’s arrest in relation
to the embezzlement of UAH 2.5 bln from the F&C bank.

 

Dmytro Khoroshun: This
development in itself should not affect Ferrexpo in the near future. However,
it is disturbing because it brings forward the scenario of Ferrexpo plc losing
control of FPM if the 50.3% stake is further transferred by a Ukrainian court
to another entity, such as the NBU, who has claims against Zhevago. This will
unduly punish all of Ferrexpo’s shareholders, not just Zhevago.

 

If someone wants to restrict Zhevago’s assets, the
more direct and just way would be to target his immediate holdings and
beneficiary interests, such as in The Minco Trust, Fevamotinico, and down to
the 50.3% stake in Ferrexpo plc. However, this path is unrealistic for a
Ukrainian claimant.

 

Instead, a first-tier Ukrainian court has apparently
decided it is appropriate to put restrictions on Zhevago’s effective, but
indirect holdings in Ukrainian companies such as FPM. This is why the court
restricted precisely 50.3% of FPM’s shares from the 100% owned by Ferrexpo AG.

 

Nevertheless, Ferrexpo AG should be able to put up
a prolonged legal fight in this matter, and it is unlikely that it will lose
any Ukrainian assets in the near future.