Ferrexpo concerned about ongoing trials on Poltava Mining shares by four companies, fears uncertainty with payment of dividends

KYIV. March 17 (Interfax-Ukraine) – Mining company Ferrexpo is concerned about the ongoing litigation with former shareholders to invalidate the 2002 agreement on the sale of 40.19% of the shares of its largest Ukrainian asset – Poltava Mining.

According to the annual report of Ferrexpo, considering the continued unpredictable situation in Ukraine, no further dividends are proposed for the financial year 2022 as at the date of the approval of these consolidated financial statements. The total available distributable reserves of Ferrexpo plc is $118.624 million as of 31 December 2022 (2021: $170.8 million).

Dividends paid during the 2022 calendar year decreased by 75% to 26.4 U.S. cents compared to 105.6 U.S. cents in 2021.

Future distributable reserves at the Ferrexpo plc level are also dependent on the payment of dividends by the subsidiaries to the respective parent companies within the Group and certain Group companies are currently restricted from paying dividends outside of Ukraine as a result of Ukrainian currency control measures imposed under the Martial Law, the company said.

“The recorded impairment loss as of 31 December 2022 and the war-related uncertainties, as well as the uncertainties related to the political environment and the independence of the legal system and other circumstances facing the group could have a negative impact on the potential for future dividend payments,” the company said in in the report.

On 23 November 2020, the Kyiv Commercial Court opened court proceedings in relation to an old shareholder litigation. In 2005, a former shareholder in PJSC Ferrexpo Poltava Mining (FPM) brought proceedings in the Ukrainian courts seeking to invalidate the share sale and purchase agreement pursuant to which a 40.19% stake in FPM was sold to nominee companies that were previously ultimately controlled by Kostyantin Zhevago, amongst other parties. After a long period of litigations, all old claims were fully dismissed in 2015 by the Higher Commercial Court of Ukraine. In January 2021, Ferrexpo AG (FAG) received a claim from a former shareholder in FPM to invalidate the share sale and purchase agreement concluded in 2002.

“The shares in FPM claimed by the claimants, which in 2002 amounted to 40.19% of FPM, now represents 8.5% of FPM’s share capital as at 31 December 2022, taking into account the dilutive effect from the numerous share capital increases made by FAG since 2002,” Ferrexpo said in the report.

Following the identification of numerous errors in the application of the Ukrainian law in the judgement of the Northern Commercial Court of Appeal by the Group’s legal advisors, FAG filed a cassation appeal and requested the Supreme Court of Ukraine to review the ruling made by the Northern Commercial Court of Appeal. The hearing at the Supreme Court of Ukraine took place on 17 November 2022. After this first hearing and before the Supreme Court of Ukraine concluded on the legal merits of the parties involved in this dispute, the parties filed a motion requesting the case to be heard by the Grand Chamber of the Supreme Court. During the court hearing held on 1 December 2022, the Supreme Court decided to refer the case for consideration to the Grand Chamber of the Supreme Court.

The first hearing by the Grand Chamber of the Supreme Court was scheduled for 15 March 2023.

Based on legal advice obtained, management remain of the view that Ferrexpo has compelling arguments to defend its position in the Grand Chamber of the Supreme Court. A negative decision from the Grand Chamber of the Supreme Court of Ukraine would result in the loss of a significant proportion of the group’s main operating subsidiary in Ukraine and have a material adverse impact on the shareholders’ equity attributable to the shareholders of Ferrexpo plc, the group said.

“Due to legal uncertainties, including the percentage of FPM’s share capital at the yearend subject to the claims, it is currently impracticable to reasonably estimate the financial impact, but it could be material. A negative decision could also have an impact on potential future dividends from FPM to FAG and, as result, on the distributable reserves of Ferrexpo plc,” the group said in the report.

No non-controlling interest has been recognised as of 31 December 2022 because the transfer of shares in FPM has not legally happened and FPM remains, as a consequence, wholly owned by FAG as at the date of the approval of these consolidated financial statements.