October 6, 2008 5:32 pm

Zhevago forced to offload 20% stake in Ferrexpo

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The controlling shareholder in Ferrexpo has been forced to sell a 20.8 per cent stake in the Ukrainian iron ore producer after a fall in its share price prompted bankers JPMorgan Chase to recall a loan.

Kostyantin Zhevago, the 33-year-old Ukrainian billionaire businessman and politician, confirmed on Monday that he had sold the stake to the investment vehicle of Zdenek Bakala, controlling shareholder in New World Resources, a fellow London-listed Czech coal miner.

Mr Zhevago, a sitting Ukrainian MP who retains a 51 per cent stake in Ferrexpo through holding company Fevamotinico, sold the stake at 83p a share, a sharp discount to Friday’s closing price of 117½p.

Shares in both companies fell on Monday as New World’s board met to consider Mr Bakala’s plan to sell on the Ferrexpo stake to New World and seek reciprocal representation for both companies on each other’s boards. Ferrexpo’s board was also meeting in Kiev on Monday to consider its reaction to the sale.

Ferrexpo shares hit 100p before closing down 5¼p at 112¼p while shares in New World Resources, in which Mr Bakala’s vehicle RPG Industries holds a 62 per cent stake, closed down 111p at 540p.

The margin call on Mr Zhevago by the US bank follows sharp falls in Ferrexpo’s shares, which have lost almost half their value over the past fortnight.

JPMorgan Chase first took over the loan from Deutsche Bank in April, when Ferrexpo’s shares traded above 340p. Shares in the company, which debuted at 140p in June 2007, hit 484½p this June amid a boom in demand from steel-hungry economies, catapulting the company into the FTSE 100.

But the subsequent flight from mining stocks, coupled by fears of sovereign risk and political upheaval in Ukraine, hit Ferrexpo shares and saw it ejected from the index in the September review.

Mike Oppenheimer, Ferrexpo’s chief executive, said Mr Zhevago’s recalled loan was “irrelevant” to the operation of Ferrexpo.

“Mr Zhevago is the victim of financial circumstances,” said Mr Oppenheimer. “But he has managed to maintain control in the company at 51 rather than 71 per cent.”

The sale of the 20.8 per cent stake for about £93m means Mr Zhevago’s remaining shares in Ferrexpo, still subject to lock-in arrangements following flotation, “will be free of lien, security or other charges granted in favour of JPMorgan,” the company confirmed.

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