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Billionaire Shows How Politics Might Really Work in Ukraine

Volodymyr Verbyany and Kateryna Choursina
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Billionaire Shows How Politics Might Really Work in Ukraine

(Bloomberg) -- In the Ukrainian town of Horishni Plavni, hundreds of people gathered at the Palace of Culture waiting for their man. He pulled up in a black Mercedes G Class SUV with his bodyguards and dashed to address a full house.When you employ almost a fifth of the population, pump millions into amenities and offer discount home loans, a hero’s welcome is probably the least you expect even in the murky world of Ukrainian politics. But for billionaire Kostyantin Zhevago, keeping his faithful on board could end up meaning more than just reward for two decades as the local lawmaker with deep pockets.The company he controls, Ferrexpo, the world’s third-biggest exporter of iron-ore pellets, is being examined by auditors for links to a charity that’s suspected by local prosecutors of possible money laundering.For super-rich businessmen, retaining a seat in this weekend’s election comes with benefits afforded to members of parliament: access to power, influence over the adoption of laws, and immunity from prosecution, not that Zhevago is being targeted by the authorities. Both he and Ferrexpo reject any suggestions the company acted improperly. The razzmatazz in Horishni Plavni gives a glimpse of how politics works in the former Soviet state where a television comedian, Volodymyr Zelenskiy, shot to power this year to become president.Read More: Comedian Raises Serious Questions for UkraineAlmost 200 seats – just under half of parliament – are being contested by oligarchs, sports stars, showbiz celebrities and activists with their own agendas, potentially complicating Zelenskiy’s promise to overhaul Ukraine. The system makes the outcome of elections unpredictable and forces governments to navigate a maze of interests, egos and alliances.“Very often candidates endow voters with children’s playgrounds or distribute packages of cereals,” said Ilona Sologoub, chief executive officer at the Vox Ukraine think tank. “If this is an owner or a top official at some large enterprise in a constituency, the candidate has the resources to impact elections.”The 45-year-old Zhevago, with an estimated wealth of $1.5 billion in the Bloomberg Billionaires Index, was in confident form when he visited the industrial town last week. The Poltava and Yerystovo iron ore mining plants, both part of Ferrexpo, provide 9,000 jobs for a population of 51,000.In the Palace of Culture, whose stage he paid to refurbish in 2012, Zhevago stood behind a rostrum in front of a silky white grand drape curtain. He fended off uncomfortable questions about his company’s environmental footprint and promised to improve the town and its infrastructure.“You can ask anyone, everyone knows him,” said cafe owner Olha Pushenko, 48, who has been voting for Zhevago since 2012. When asked if she was going to choose the billionaire in the Sunday vote, she was emphatic: “Definitely, definitely!”Because her husband worked as a blaster at the iron ore mine, Pushenko’s family received a mortgage from Zhevago’s bank at a better interest rate, she said. The lender was declared insolvent in 2015 by Ukraine’s central bank and the state-run Deposit Guarantee Fund said in December it was under investigation. Zhevago, who set up his own brokerage before building a fortune in finance, metals and mining and the auto industry, was 24 years old when he was elected to parliament in 1998. With two revolutions in the past 15 years, only a handful of Ukrainian politicians can boast such political longevity. During that time, he became the first Ukrainian businessman to debut a company on the main market of the London Stock Exchange in 2007.He has a knack for knowing which way the wind is blowing. He told the audience in Horishni Plavni that in the presidential election runoff he voted for Zelenskiy, a comic who played a fictional schoolteacher thrust into the presidency after a video of him railing against corruption went viral.Ukraine is ranked by Transparency International as Europe’s most corrupt country after Russia and Azerbaijan. Zelenskiy has vowed to tackle graft, even ending the immunity law for politicians.“I would like to support new forces in parliament, because old forces have all discredited themselves,” said Zhevago, who was a member of former Prime Minister Yulia Tymoshenko’s party and is currently independent. “Because they led Ukraine to poverty, to war and disorder.”But Zhevago has his own problems. On April 26, Ferrexpo’s shares lost 28 percent, the most in three years, after auditor Deloitte LLP and two directors resigned amid an investigation at a charity linked to the company. Deloitte had previously found “unexplained discrepancies” in donations Ferrexpo made to the Ukrainian charitable foundation Blooming Land, which backs causes such as diabetes awareness and care of the elderly. Ukrainian prosecutors are investigating whether the charity was used to launder money and evade taxes, according to legal documents available in the public courts registry dated in February. Ferrexpo denies any control or influence on Blooming Land.At the event in Horishni Plavni, Zhevago responded when asked by Bloomberg about the audit of Ferrexpo and the probe into Blooming Land, that “this is provocation from your side.”“Everything you say is just a lie,” he said. At a function in May, he said the investigation means nothing because the authorities are looking into almost all the country’s charitable foundations.One man in the audience asked why Ferrexpo’s shares had plunged. The company now is the second-best performer of the 36 companies included in the FTSE All-Share Basic Materials Index, having gained 39 percent this year.“The shares fell after some representatives from the audit committee made absurd statements saying nonsense,” Zhevago responded. “Then they resigned and since their conclusions were not confirmed, three days later the stock rose.”Indeed, Ferrexpo is a source of pride in the town. A different charity fund set up by Ferrexpo Poltava Mining pays awards to students and sports people and gives money to repair schools and kindergartens.“An oligarch who shares his income with people is a good option,” says Lyudmyla Kasianova, a 64-year retiree who will cast her ballot for Zhevago like her husband, also a pensioner.Having such a “contract” with a tycoon “is not very good,” said Volodymyr Pazynych, 43, an official at Horishni Plavni’s local council in charge of sports. “But people are okay with it, as the town gets money. I don’t know how to make people change their point of view. As of today, they mentally are not ready for changes.”In the town, formerly called Komsomolsk after the political youth organization in the Soviet Union, a large billboard advertises the website that glorifies Zhevago’s largess. Other than that, it’s hard to see that an election campaign is underway.Zhevago’s opponents don’t waste money on competing with a man who won 44% percent of the vote the last time around in October of 2014, an 18 point victory over his nearest opponent.Yet his visit to Horishni Plavni was somewhat of a rare treat, according to locals. With a business spanning tire production to pharmaceutical plants, public records show Zhevago also doesn’t spend a lot of time in parliament, though he’s a member of its legal policy and justice committee.During the term that just ended, he sat in a third of sessions and last voted for a bill in March, according to the legislature’s registry. When asked about his attendance, Zhevago denied he skipped sittings. “That is not true,” he said.Pushenko, the cafe owner, doesn’t see any problems if Zhevago didn’t show up. “Many lawmakers are like this,” she said. “Of course it’s his duty to attend parliament sessions. But to be honest with you, I sort of close my eyes to this a little.”\--With assistance from Alexander Sazonov.To contact the authors of this story: Volodymyr Verbyany in Kiev at vverbyany1@bloomberg.netKateryna Choursina in Kiev at kchoursina@bloomberg.netTo contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net, Rodney JeffersonFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

(Bloomberg) -- In the Ukrainian town of Horishni Plavni, hundreds of people gathered at the Palace of Culture waiting for their man. He pulled up in a black Mercedes G Class SUV with his bodyguards and dashed to address a full house.

When you employ almost a fifth of the population, pump millions into amenities and offer discount home loans, a hero’s welcome is probably the least you expect even in the murky world of Ukrainian politics. But for billionaire Kostyantin Zhevago, keeping his faithful on board could end up meaning more than just reward for two decades as the local lawmaker with deep pockets.

The company he controls, Ferrexpo, the world’s third-biggest exporter of iron-ore pellets, is being examined by auditors for links to a charity that’s suspected by local prosecutors of possible money laundering.

For super-rich businessmen, retaining a seat in this weekend’s election comes with benefits afforded to members of parliament: access to power, influence over the adoption of laws, and immunity from prosecution, not that Zhevago is being targeted by the authorities. Both he and Ferrexpo reject any suggestions the company acted improperly. 

The razzmatazz in Horishni Plavni gives a glimpse of how politics works in the former Soviet state where a television comedian, Volodymyr Zelenskiy, shot to power this year to become president.

Read More: Comedian Raises Serious Questions for Ukraine

Almost 200 seats – just under half of parliament – are being contested by oligarchs, sports stars, showbiz celebrities and activists with their own agendas, potentially complicating Zelenskiy’s promise to overhaul Ukraine. The system makes the outcome of elections unpredictable and forces governments to navigate a maze of interests, egos and alliances.

“Very often candidates endow voters with children’s playgrounds or distribute packages of cereals,” said Ilona Sologoub, chief executive officer at the Vox Ukraine think tank. “If this is an owner or a top official at some large enterprise in a constituency, the candidate has the resources to impact elections.”

The 45-year-old Zhevago, with an estimated wealth of $1.5 billion in the Bloomberg Billionaires Index, was in confident form when he visited the industrial town last week. The Poltava and Yerystovo iron ore mining plants, both part of Ferrexpo, provide 9,000 jobs for a population of 51,000.

In the Palace of Culture, whose stage he paid to refurbish in 2012, Zhevago stood behind a rostrum in front of a silky white grand drape curtain. He fended off uncomfortable questions about his company’s environmental footprint and promised to improve the town and its infrastructure.

“You can ask anyone, everyone knows him,” said cafe owner Olha Pushenko, 48, who has been voting for Zhevago since 2012. When asked if she was going to choose the billionaire in the Sunday vote, she was emphatic: “Definitely, definitely!”

Because her husband worked as a blaster at the iron ore mine, Pushenko’s family received a mortgage from Zhevago’s bank at a better interest rate, she said. The lender was declared insolvent in 2015 by Ukraine’s central bank and the state-run Deposit Guarantee Fund said in December it was under investigation. 

Zhevago, who set up his own brokerage before building a fortune in finance, metals and mining and the auto industry, was 24 years old when he was elected to parliament in 1998. With two revolutions in the past 15 years, only a handful of Ukrainian politicians can boast such political longevity. During that time, he became the first Ukrainian businessman to debut a company on the main market of the London Stock Exchange in 2007.

He has a knack for knowing which way the wind is blowing. He told the audience in Horishni Plavni that in the presidential election runoff he voted for Zelenskiy, a comic who played a fictional schoolteacher thrust into the presidency after a video of him railing against corruption went viral.

Ukraine is ranked by Transparency International as Europe’s most corrupt country after Russia and Azerbaijan. Zelenskiy has vowed to tackle graft, even ending the immunity law for politicians.

“I would like to support new forces in parliament, because old forces have all discredited themselves,” said Zhevago, who was a member of former Prime Minister Yulia Tymoshenko’s party and is currently independent. “Because they led Ukraine to poverty, to war and disorder.”

But Zhevago has his own problems. On April 26, Ferrexpo’s shares lost 28 percent, the most in three years, after auditor Deloitte LLP and two directors resigned amid an investigation at a charity linked to the company. 

Deloitte had previously found “unexplained discrepancies” in donations Ferrexpo made to the Ukrainian charitable foundation Blooming Land, which backs causes such as diabetes awareness and care of the elderly. Ukrainian prosecutors are investigating whether the charity was used to launder money and evade taxes, according to legal documents available in the public courts registry dated in February. Ferrexpo denies any control or influence on Blooming Land.

At the event in Horishni Plavni, Zhevago responded when asked by Bloomberg about the audit of Ferrexpo and the probe into Blooming Land, that “this is provocation from your side.”

“Everything you say is just a lie,” he said. At a function in May, he said the investigation means nothing because the authorities are looking into almost all the country’s charitable foundations.

One man in the audience asked why Ferrexpo’s shares had plunged. The company now is the second-best performer of the 36 companies included in the FTSE All-Share Basic Materials Index, having gained 39 percent this year.

“The shares fell after some representatives from the audit committee made absurd statements saying nonsense,” Zhevago responded. “Then they resigned and since their conclusions were not confirmed, three days later the stock rose.”

Indeed, Ferrexpo is a source of pride in the town. A different charity fund set up by Ferrexpo Poltava Mining pays awards to students and sports people and gives money to repair schools and kindergartens.

“An oligarch who shares his income with people is a good option,” says Lyudmyla Kasianova, a 64-year retiree who will cast her ballot for Zhevago like her husband, also a pensioner.

Having such a “contract” with a tycoon “is not very good,” said Volodymyr Pazynych, 43, an official at Horishni Plavni’s local council in charge of sports. “But people are okay with it, as the town gets money. I don’t know how to make people change their point of view. As of today, they mentally are not ready for changes.”

In the town, formerly called Komsomolsk after the political youth organization in the Soviet Union, a large billboard advertises the website that glorifies Zhevago’s largess. Other than that, it’s hard to see that an election campaign is underway.

Zhevago’s opponents don’t waste money on competing with a man who won 44% percent of the vote the last time around in October of 2014, an 18 point victory over his nearest opponent.

Yet his visit to Horishni Plavni was somewhat of a rare treat, according to locals. With a business spanning tire production to pharmaceutical plants, public records show Zhevago also doesn’t spend a lot of time in parliament, though he’s a member of its legal policy and justice committee.

During the term that just ended, he sat in a third of sessions and last voted for a bill in March, according to the legislature’s registry. When asked about his attendance, Zhevago denied he skipped sittings. “That is not true,” he said.

Pushenko, the cafe owner, doesn’t see any problems if Zhevago didn’t show up. “Many lawmakers are like this,” she said. “Of course it’s his duty to attend parliament sessions. But to be honest with you, I sort of close my eyes to this a little.”

--With assistance from Alexander Sazonov.

To contact the authors of this story: Volodymyr Verbyany in Kiev at vverbyany1@bloomberg.netKateryna Choursina in Kiev at kchoursina@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net, Rodney Jefferson

For more articles like this, please visit us at bloomberg.com

©2019 Bloomberg L.P.