Foreign investment in Aotearoa/New Zealand

Overseas Investment Office – July 2011 Decisions

Kim Dotcom’s NZ Troubles Just Begin

We start our analysis this month with an OIO rejection, actually three of them, all involving German Internet mogul Kim Dotcom. As readers will now realise, perhaps Kim should have seen these OIO decisions as some sort of omen, and moved to another country without an extradition treaty with the USA. Little did he know that Uncle Sam had him in their sights for running one of the largest and most profitable internet piracy sites, Megaupload. But more on this later.

Firstly details of the three Decisions that were declined by the OIO. Kim Dotcom Hong Kong (SAR) (100%) or his 100% owned Megastuff Limited was declined in his application to purchase the following three properties:

a freehold interest in 26.7 hectares of land at 186 Mahoenui Valley Rd, Coatesville, Albany;
a freehold interest in 16.5 hectares of land at State Highway (SHW) 10, Taipa, Doubtless Bay, Northland; and
a freehold interest in 2.2 hectares of land at 5H The Prom, Coatesville, Albany.

Not Of Good Character, But Money Talks

The first property is owned by Richard Lee & Janet Ruth Bradley, New Zealand (100%) the owners of Chrisco, the other two properties are already overseas owned. The OIO states with respect to all three Decisions: “Mr Dotcom and his family have been granted New Zealand residence visas but do not intend to reside indefinitely in New Zealand. The overseas investment transaction has not satisfied all the criteria in section 16 of the Overseas Investment Act 2005”. In other words the OIO considered him “not of good character” but his character (or money) was good enough for him to acquire New Zealand residency!

However it appears the OIO did initially consider him of good character but changed their mind after the intervention of a then Minister, Simon Power. As reported in the Christchurch Press (10/3/12, “Power intervened in Dotcom house buys”): “The Overseas Investment Office gave Kim Dotcom the green light to buy three New Zealand properties despite his chequered past, but former Associate Finance Minister Simon Power put the brakes on. Dotcom is out on bail awaiting a three-week extradition hearing because the United States wants him on Internet piracy, copyright and wire fraud charges involving his Megaupload file-sharing company.

“Dotcom, 38, was granted residency in November 2010, after investing $10m in Government bonds – despite a string of foreign convictions and being considered persona non grata in Thailand. In July 2011 the Overseas Investment Office recommended he be allowed to buy the $30m ‘Chrisco’ mansion in Coatesville, northwest of Auckland, where he was living with his Filipino wife and three children. The OIO said he should also be allowed to buy a $6m adjoining house known as ‘The Prom’ and a 16.5-hectare property at Taipa, in Northland’s scenic Doubtless Bay. Documents released under the Official Information Act show Mr Power was not satisfied Dotcom met the good character requirements. ‘The offending and convictions by Mr Dotcom are clearly relevant factors. By their repetition and the fact they are essentially ‘dishonesty’ charges, I consider the pattern of this behaviour goes to the character of Mr Dotcom’.

“The OIO said the Finnish national, who was born in Germany, was a ‘colourful individual’ but, on balance, had a good character. ‘Our view is that the facts are also capable of supporting the view that Mr Dotcom is not of good character’. Dotcom ran several high profile Internet businesses involved with file sharing and pornography, though his Megaporn.com site had processes to prevent unlawful pornography distribution. Land Information Minister Maurice Williamson originally approved the OIO’s recommendation – but three weeks later changed his mind ‘after consultation and further discussion’. Documents also show Immigration NZ went beyond the call of duty to make entering New Zealand easier for Dotcom.

“In early 2010, he was granted a multiple entry visa, without having to pay the fee, to travel here with ‘greater comfort’ for tourism and investment scouting opportunities. ‘I suggest we facilitate his entry’, one official wrote. ‘Are you comfortable with doing so?’ After not declaring his German convictions when previously arriving in New Zealand by private jet, Dotcom was told he must do so. To avoid delays when he arrived, Immigration wrote to Customs advising that he be let in after receiving a special waiver. Immigration also assisted Dotcom with his Australian visa by sending on original copies of his documents.

“His immigration agent, David Cooper, of Malcolm Pacific, pressed his case with officials, saying ‘with his wealth he has the option to go anywhere in the world’. Dotcom was keen to avoid media attention which could lead to him choosing another country to live in, Mr Cooper said. ‘I’m not saying this is any type of threat … but Mr Dotcom is genuinely very sensitive to these matters’. Mr Power declined to comment yesterday on Dotcom’s OIO application as he has left politics. Malcolm Pacific founder and former Immigration Minister, Aussie Malcolm, said that was a ‘cop-out’. Dotcom did not get special treatment in relation to his previous convictions and the discretion afforded to his application was the same as that given to other high value migrants, Mr Malcolm said”.

So Who Is Kim Dotcom?

Wikipedia outlines his rather colourful but chequered past. “Kim Dotcom, born Kim Schmitz January 21, 1974 also known as Kimble and Kim Tim Jim Vestor, is a German-Finnish computer programmer and businessman who rose to prominence during the dot-com bubble and was convicted of insider trading and embezzlement in its aftermath. He is also known as the founder of Megaupload and its associated Websites. He legally changed his surname to Dotcom circa 2005.

“As a teenager, Dotcom earned a reputation in his native Germany for cracking corporate private branch exchange (PBX) systems in the United States, and tried to parlay it into a career in data security. That effort led to his arrest on charges of using and selling stolen calling card numbers. In 1994, Dotcom founded a computer security company called DataProtect. In 1999, DataProtect and IVM Engineering presented the ‘Megacar’, a Brabus-tuned Mercedes-Benz S-Class W220 which, among other features, had a Windows NT server, a 17.3” SGI flat panel display and combined 16 GSM modules to provide mobile broadband Internet access.

“In 1998, Dotcom was sentenced to a probationary sentence of two years for computer fraud and handling stolen goods. According to a report by News & Record, he had traded stolen calling card numbers he bought from hackers in the United States. He achieved early notoriety by being the subject of an advanced-for-its-time flash animation video called Kimble Special Agent. The name is a reference to Richard Kimble, the main character of the television series The Fugitive. Dotcom later sold 80% of the shares of DataProtect to TÜV Rheinland in 2000, during the dot-com bubble. The former went bankrupt at the time of the subsequent market crash in 2001.

“In 2001, Dotcom purchased $US375,000 worth of shares of the nearly bankrupt company LetsBuyIt.com and subsequently announced his intention to invest €50 million in the company. Unknown to others, Dotcom did not have the funds available to invest, although the announcement caused the share value of LetsBuyIt.com to jump by nearly 300%. Dotcom quickly sold the shares and profited $US1.5 million as a result. Dotcom had also arranged and obtained an unsecured loan of €280,000 from Monkey AG, a company for which Dotcom had served as Chairman of the Board. The funds were to be paid to Kimvestor AG. As a result, both Monkey and Kimvestor went bankrupt. Dotcom expressed remorse, stating that he had been ‘dazzled’ and had not recognised that he would be unable to repay the loans.

“In January 2002, Dotcom was arrested in Bangkok, Thailand, deported to Germany, and sentenced to a probationary sentence of one year and eight months, and a €100,000 fine, the largest insider trading case in Germany at the time. Dotcom also pleaded guilty to embezzlement in November 2003 and received a two year probation sentence. On 21 March 2005, Dotcom founded Megaupload Limited, a Hong Kong-based file hosting and sharing business that eventually became the 13th most popular site on the Internet with over 150 employees, $US175 million revenues, 50 million visitors daily, and estimated to be responsible at its peak for 4% of all Internet traffic.

Arrested In NZ On US Charges

“In 2010, Dotcom leased an $NZ30M mansion at Coatesville, near Auckland, owned by Richard and Ruth Bradley, the British founders of Chrisco, and considered the most expensive house in the country. He had an arrangement to buy the mansion when the lease expired, but the New Zealand government declined his application to buy the land on the basis that he did not meet the ‘good character’ test. Dotcom was granted permanent residency in New Zealand in 2010.

“The Megaupload business’ domain names were seized and the sites shut down by the US Justice Department on 19 January 2012, following their indictment and arrests of the owners for allegedly operating as an organisation dedicated to copyright infringement. An investigative piece found Dotcom in Hong Kong business records with the new name ‘Kim Tim Jim Vestor’, allegedly bearing a Finnish passport, and acting as director of several ‘Mega’ companies, among them Megaupload Ltd and Megarotic Ltd. According to Megaupload spokesperson B. Lam, Kim is one of many shareholders at Mega and not involved in most day to day business decisions.

“Kim Dotcom has spoken out against his negative portrayal in the media, claiming to be a reformed character and a legitimate businessman who has been unfairly demonised by US authorities and industry trade groups such as the Recording Industry Association of America and the Motion Picture Association of America. He contends that the services offered by his Megaupload site were not significantly different from those of comparable services such as Rapidshare or YouTube, and he has just been used as a scapegoat because of his hacker past. Dotcom is also keen to point out his charitable works, including funding the fireworks display for New Year 2011 in Auckland, and donating large amounts of money to the relief fund following the devastating 2011 Christchurch earthquakes, and explains that his property purchases in New Zealand were approved by several other government Ministers before being vetoed at the last minute by Justice Minister Simon Power, after the US Department of Justice secretly asked his Department for help with their investigation of Dotcom”.

CAFCA has often asked: “Where was the good character test?” in Decisions approved by the OIO in the past. Perhaps this time Simon Power got it right, even if the OIO and NZ Immigration Service didn’t? As we go to print, I am sure this is not the last we have heard of Kim Dotcom.

(Since this was written CAFCA has applied for and received, under the Official Information Act, the OIO’s file on the Kim Dotcom applications that it declined. Some material has been withheld, which is routine for the OIO. Ed.)

The Japanese Have A Taste For Charlie’s

Asahi Beverages New Zealand Limited and Asahi Group Holdings, Ltd Japanese Public (74.1%), United States Public (12.4%), Various Public (6%), United Kingdom Public (6%), and Australian Public (1.5%) received approval for the acquisition of rights or interests in up to 100% of the shares of Charlie’s Group Limited, the consideration of which exceeds $100m. Consideration was $129,300,743.The vendors were existing shareholders of Charlie’s Group Limited New Zealand (100%).These include well known sports/media personality Marc Ellis (14%) and fellow founders Stefan Lepionka and Simon Neal. The OIO states: “Asahi Group Holdings, Ltd (“Asahi”) believes the acquisition is consistent with its current business strategy and that Charlie’s Group Limited’s business will complement other businesses within the Asahi group”.

Asahi is a leading brewery and soft drink company based in Tokyo, Japan. The company has a 40% share of the Japanese beer market. It has been interested in expanding its operations in this part of the world for some time. In 2009, Asahi bought Cadbury’s Schweppes Australia for £550 million ($1.06 billion), and recently bought the mineral water and juice business of Australia’s P&N Beverages for $A188 million ($243 million) and now Charlie’s. As you will shortly see from our commentary for August, the Charlie’s purchase is simply an aperitif for a much larger purchase here. Charlie’s makes and markets a range of “not from concentrate” and organic beverages. Its main brands are Charlie’s and Phoenix Organics. The business was established in 1999 and floated on the New Zealand Stock Exchange, through a backdoor listing, in July 2005. Another successful New Zealand start-up company, whose owners ultimately couldn’t resist the deep pockets of (Japanese) transnational.

Private Equity Group Takes Control Of Veda

Pacific Equity Partners Pty Limited, on behalf of a group of private equity funds managed and advised by the Applicant (the “PEP Funds”) PEP Fund III United States Public (50.7%), Australian Public (15%), Various Public (34.3%), PEP Fund IV United States Public (64.4%), Australian Public (21.9%) and Various Public (13.7%) received approval for the acquisition of rights or interests in up to a further 49.78% of the shares of VA Australia Holdings Pty Limited, the consideration of which exceeds $100m. Consideration was stated as confidential. The vendors were Merrill Lynch Global Partners Inc United States Public (77.7%), Singapore Government, Singapore (9%), State Street Bank and Trust Company, United States of America (7.8%) and Axa Financial Inc, France (5.5%).

The OIO states: “The PEP Funds currently own a 49.74% interest in VA Australia Holdings Pty Limited (VA), which ultimately owns and controls the New Zealand business assets of Veda Advantage. Veda Advantage carries on business providing credit assessment services. The Applicant believes that the New Zealand businesses of Veda Advantage have the potential to grow”. PEP and Merrill Lynch’s original purchase of Veda for $1 billion was reported in our May 2007 commentary. Merrill Lynch was one of the casualties of the 2008 global financial crisis and was swallowed up by Bank of America in 2009 (see our March 2009 commentary). Swallowed up is probably the wrong term, force fed by Uncle Sam is more accurate.

Veda Advantage is one of the largest holders of information about individuals in Australasia, describing themselves on their Website as follows: “Veda’s business is all about ‘applied intelligence’. We accumulate, transform, and connect data in order to provide our customers with great insights. For Veda, this entails a rigorous and continuous process of quality control, refinement and innovation. Veda is built on the largest, most comprehensive and current data source in Australia and New Zealand. We hold more fit for purpose credit data than any other organisation including information on 16.5 million credit active people and 4.4 million businesses. Every day we report on the credit status of 60,000 people and businesses applying for credit across the Tasman. The breadth and depth of our data, and the knowledge it delivers will help you take a proactive and informed approach in making decisions”.

As we reported in May 2007, Veda is the former Baycorp Advantage, debt collectors. Baycorp was a highly successful New Zealand firm until it merged with Data Advantage Ltd of Australia in 2001, moving its headquarters to Sydney (see our commentary for September 2001 for further details). It was all downhill from there. This is signalled by the price paid by PEP and Merrill Lynch in 2007 of $1 billion. Baycorp and Data Advantage had a combined market valuation of $1.9 billion when they merged in 2001. In 2005 the company announced it was getting out of debt collecting and focusing on “business intelligence” – in other words, databases on individual persons and companies’ credit records.

At this stage one can only speculate on the price paid by PEP to secure the remaining 50% of Veda, but given the history of deteriorating value, one must question the “applied intelligence” of those running Veda! How ironic is it that the largest credit rating agency in Australasia is itself financed by debt. And I wonder how PEP rates within Veda? For details of other Pacific Equity Partners purchases here, see our commentaries for August 2002, May and November 2004, March and May 2006, January and May 2007, January, February, September and October 2008, March 2009 and April 2010.

Retrospective Consent Given To Merck

Merck & Co., Inc. United States of America (100%) received approval for an overseas investment in sensitive land, as a result of the shareholders of the former Merck & Co., Inc (now Merck Sharp & Dohme Corp.) acquiring 68% of the shares of the Applicant (formerly Schering-Plough Corporation) which owns or controls a freehold interest in 29.4 hectares of land at 66A TVL Road, Upper Hutt. The asset value was stated as $67,875,000. The vendors were existing shareholders of Schering-Plough Corporation United States Public (82.1%), Wellington Management Company, LLP, United States of America (12.9%) and Capital Research Global Investors, United States of America (5%)

The OIO states: “The Applicant is seeking retrospective consent to a change in the control of sensitive land as a result of a merger between the Applicant (formerly Schering-Plough Corporation) and the former Merck & Co., Inc. (now renamed Merck Sharp & Dohme Corporation) on 3 November 2009. The merged entity is now the second largest pharmaceutical company in the world with business operations in more than 150 countries. The merged entity conducts research, manufacturing and distribution of a broad range of innovative products to improve human and animal health, including vaccines and antibiotics.”

Merck & Co is one of the worlds’ largest pharmaceutical companies In 2005 it was a Roger Award finalist for continuing to promote and market the pain relief drug Vioxx for four years after evidence surfaced that it increased the likelihood of heart attacks by four to five times compared to other drugs. And Merck’s dodgy drugs don’t stop with Vioxx. The following story was reported by the Associated Press on March 1, 2012: “Merck & Co. has settled a lawsuit over claims the drug maker delayed releasing disappointing results of a study management had hoped would instead boost sales of a key drug. The settlement ends a four-year-long case that shareholders had filed after the company, for 21 months, delayed releasing results on a study of Vytorin likely to hurt future sales of the blockbuster pill for treating high cholesterol.

“The settlement’s key provision is aimed at ensuring patients and investors get important study data promptly. That’s important because pharmaceutical companies in the past have failed to publish some studies indicating their drugs aren’t very effective or have significant side effects. The study that triggered the lawsuit, known by the acronym ENHANCE, showed that pricey Vytorin, which brought in billions of dollars each year, was no better at reducing plaque build-up in neck arteries than Zocor. Zocor is one of the two components in Vytorin, and inexpensive generic Zocor had been on the market since 2006.The settlement was approved Tuesday at a hearing in Federal court in Newark, New Jersey.

“It requires Merck’s research division to report each year to the research committee of Merck’s Board of Directors on any delay over a year in publicly disclosing results of patient studies, the reasons for the delay and any corrective action taken after the delay. The committee could then investigate or raise the issue with the full board. The requirement remains in force for at least three years and covers all drugs already on the market, but not experimental ones in development. ‘It’s a very appropriate resolution of the case’, said Merck spokesman Ron Rogers. Merck, based in Whitehouse Station, N.J., denied any wrongdoing in the court documents.

“US District Judge Dennis M. Cavanaugh, who approved the settlement, also ordered Merck to pay $US5.1 million to cover fees and expenses of the plaintiff, a retirement plan called the Plymouth County Contributory Retirement System. The plan’s attorney did not return calls seeking comment Wednesday. Cholesterol drugs are taken by millions of Americans to reduce risk of heart attack and stroke, particularly if they have heart disease or diabetes. Vytorin combines two types of cholesterol drugs. Zocor is part of the hugely popular drug class called statins, which include heavily advertised Lipitor and Crestor. Those drugs reduce the amount of cholesterol naturally produced in the liver. The other Vytorin component, Zetia, reduces the amount of cholesterol absorbed from food.

“The lawsuit was originally filed in February 2008 by a couple, Mary E. and James D. Cain. They were shareholders of Schering-Plough Corp., another drug maker that became part of Merck in November 2009. After Cain died and his wife became ill, the pension plan took over as plaintiff a year ago. When the case was filed, Merck and Schering-Plough had a joint venture that developed and sold cholesterol drugs, including Vytorin and Zetia. Company executives had expected positive results of the ENHANCE study. When they kept delaying disclosing the results at a medical conference or in a medical journal, a Congressional panel started investigating. Under pressure, Merck released partial results in January 2008. The lawsuit was filed the next month. Merck officials at the time blamed the delay on difficulties in analysing the complex results, including high-tech imaging of patients’ neck arteries. Critics, however, said the companies deliberately held up the release to protect sales of Vytorin, which Merck and Schering-Plough sold jointly, as well as Schering-Plough’s Zetia. The two drugs racked up $US5.2 billion in sales in 2007, but that began declining sharply after the results were released”.

Aussies Take Control Of GE Mortgages

Pepper Australia Pty Limited (Pepper) Seumas Dawes, Australia (69.2%), IRG TMT Asia Fund, Cayman Islands (10.4%), Jonathan Laredo, United Kingdom (10.4%), Steven Simpson, Singapore (5.2%), Aladdin Capital Management UK LLP, United Kingdom (1.9%), Mark Attmore, United Kingdom (1.7%), Mike Culhane, Australia (1%) received approval for the acquisition of property in New Zealand used in carrying on business in New Zealand for consideration exceeding $100m, that property being the New Zealand residential mortgage portfolio of GE Custodians. The vendor was GE Custodians General Electric Company, United States of America (100%) The consideration was confidential.

The OIO states: “The acquisition of GE Custodians’ residential mortgage portfolio will help grow Pepper’s business in home lending and to expand its business operations into the New Zealand residential mortgage market”. GE Custodians had previously bought the NZ mortgage portfolio of St George Bank (Superbank) for around $500 million in 2006 (see our August 2006 commentary) Pepper has a much higher profile in Australia as a “sub-prime” lender. Credit rating agency Standard & Poors says the following about Pepper:

“Pepper was incorporated in Australia in August 2000 as a limited liability company. The company’s head office is in Sydney, and it has additional offices in Melbourne, Perth, and Brisbane. Pepper holds an Australian Financial Services Licence and an Australian Credit Licence. Pepper is a specialty mortgage finance company that provides home loans to consumers who fall outside the lending criteria of traditional bank and nonbank lenders. In particular, Pepper advances residential mortgage loans to borrowers who are self-employed or who use non-traditional documentation to verify their income, borrowers who have had prior episodes of credit impairment, and other borrowers who may not meet the requirements of traditional lenders.

“Pepper forms part of the Pepper Australia Group of companies that trade under the name Pepper Home Loans. Pepper is the holding company and main operating entity for the group’s Australian activities. A separate division, responsible for loan servicing, has been created to separate the servicing functions from the rest of the businesses operations. Pepper is a wholly owned subsidiary of Pepper Group (Singapore) Pte Ltd, a Singapore-incorporated holding company owned by a group of private individual and institutional co-investors”.

Walter Peak Station Ownership Restructured

In two separate approvals, the ownership structure of the iconic Walter Peak station on the shores of Lake Wakatipu has been restructured, again. Firstly Aurum Holdings MKI Limited Morris Kahn, Monaco (100%) has received approval for an overseas investment in sensitive land, being the Applicant’s acquisition of beneficial rights or interests in a further 7% share of the property of the Walter Peak Station Trust which owns or controls a freehold interest in 335.3 hectares of land at Walter Peak Station; and a crown lease under section 83 of the Land Act 1948 in 25758 hectares of land at Walter Peak Station. Consideration was stated as confidential; the vendor was Ian G Koblick Revocable Trust Koblick (Ian and Tonya), United States of America (100%).

In the second approval, DMC (RE) Limited Shmuel Meitar, Israel (100%) received approval to acquire 4.7% of the above mentioned properties. Consideration and vendor were the same.

The OIO states with respect to both approvals: “The transaction restructures the ownership of Walter Peak Station, thus preserving the working relationships and common philosophy shared by the current owners”. Walter Peak Station was originally purchased by Koblick and Kahn in 1998 (see our October 1998 commentary). Meitar acquired a 27.5% interest retrospectively in 2009 for $1 (see our January 2009 commentary)

Germans Buy More Southland Dairy Farms

In two separate decisions, NMP Farm Investment GmbH and PP1 Agrar Ozeanien GmbH Aquila AgrarINVEST III GmbH & Co. KG and PP1 Agrar Ozeanien Investitions GmbH & Co. KG, Germany (100%) received approval for the acquisition of rights or interests in 100% of the units of McIntosh Dairies Limited Partnership which owns or controls a freehold interest in 220.7 hectares of land at 369 McIntosh Road, Otautau. and rights or interests in up to 100% of the units of Kowhai Pastoral Limited Partnership which owns or controls a freehold interest in 417.9 hectares of land at 2138 Waimea Highway, Riversdale, Gore.

The vendors for the Otautau property were Terraces Dairy Limited Australian Public (91.7%), New Zealand Public (4.3%), various overseas persons (4%); consideration was $6,500,000. The vendor for the Riversdale property was Neville Hilton Limited New Zealand (100%); consideration was $14,000,000. With respect to the Otautau farm, the OIO states: “The Applicant intends to improve the performance and profitability of the property with extensive drainage and effluent development, as well as upgrading of the housing and cowshed. This is likely to result in a premium dairy farm business with increased production, improved cash flow and profitability and potential for future capital value growth”.

With respect to the Riversdale farm, the OIO states: “The property will continue to be used as a dairy farm. The farm is currently operated as a single dairy unit. The Applicant intends to convert the farm into two dairy units in order to lift production and performance. Proposed development includes improved effluent storage and use, upgrading of irrigation, construction of new housing and a new 40 a-side herringbone cowshed and the installation of a meal feeding system”. See our March and December 2010 and March, April and May 2011 commentaries for details of other dairy farm purchases here by this German investment fund.

Blackfish Optimistic About Porter Heights Ski Field Development

PSA Capital Limited Simon Thomas Harvey, Australia (40%), Oleg Kirillov, Russia (20%), Yuri Koropachinskiy, Russia (20%), Yury Zelvenskiy, Russia (13.4%) and Vladimir Uchitll, Russia (6.6%) received approval to acquire a freehold interest in 70 hectares of land at Steep Head Gully, 225 Dalglishs Road, Le Bons Bay; and a freehold interest in 196 hectares of land at Crystal Basin & Northern Terrace. The vendors were Rural Livestock Finance Limited and Rural Livestock Limited New Zealand (100%) and Department of Conservation the Crown, New Zealand (100%). Consideration was $490,000.

The OIO states: “This is the latest in a series of applications for overseas investment consent in relation to the development of the Porter’s ski field business. The overseas investment will facilitate the ongoing development undertaken by the Blackfish Group and the Applicant since the acquisition of Porter’s in 2006. The development includes a major expansion of ski area and facilities and is intended to offer a number of unique features not currently available on New Zealand ski fields (such as on-mountain accommodation and fully sealed access roads)”.

I realise recent seismic activity has changed the topography of the Canterbury region, but the last time I looked, Le Bons Bay wasn’t anywhere near Porter Heights ski field! And given the proposed development is a considerable distance from any population centre, my bet is that it will never get off the ground. Once all the necessary approvals are in place, expect it to be sold on by Harvey and his Russian mates. However the Press in its lead story on 28 February 2012 under the heading “Ski field project tipped to bring $1 billion Canterbury windfall” seems to have fallen for Harvey’s bluster, as have the regional commissioners who approved the project.

“A $500 million development at Porter Heights ski field, including a controversial expansion into Crystal Valley, has been given the go-ahead. The Craigieburn Range ski field project would take at least ten years to complete and would result in more than $1 billion of economic benefit to the Canterbury region over that time, an economist estimated. If it gets through the final appeals process, the expansion will lead to further development of the ski field village, and infrastructure additions to Crystal Valley for skiing.

“By the winter of 2015 the shareholders plan to put in $60m to develop chairlifts and a gondola lift at the new field. A further $100m would be spent developing the village property, Porter’s Ski Area Ltd shareholder Simon Harvey said. Over a longer period Porter’s will include a 3,400-bed alpine village with a hotel and individual chalets, new ski lifts and tows, and a hot pools complex. Summer hiking and biking activities would also be available. Commissioners appointed by Environment Canterbury and the Selwyn District Council to consider the plan change and resource consent applications released their decision yesterday. The resource consents decision is subject to a 15 working day appeal period and the plan change is subject to a 40 working day appeal period.

“Christchurch-based Green Party list MP Eugenie Sage, who made a submission against the development, said it was a disappointing decision. Nevertheless, the commissioners had done a thorough job and had made some changes that would alleviate the environmental impact on the area. ‘For example, they have put some controls on night-time lighting; they’ve got controls on aircraft activity – limiting the number of helicopter trips’, Sage said. She did not plan to appeal the decision, which would be a costly process.

“The project is being developed by Harvey (a Sydneysider) and four Russian investors – Yuri Koropachinskiy, of Moscow, and Oleg Kirillov, Yury Zelvenskiy and Vladimir Uchitll, all of Siberia. The Overseas Investment Office-approved investors, who have visited the area and already poured in $10m, say it will bring thousands of tourists to the mountain and Canterbury, and hundreds of jobs to the region. The Selwyn Council private plan change (known as PC25) will rezone 616 hectares of rural high country, including Crystal Valley, into a special ‘sub zone’ that allows skiing and development. The zone sets aside 21ha for a mountain village, 34ha for wastewater and treatment disposal and the rest for skiing. The commissioners – Sharon McGarry, Denis Nugent and Greg Ryder – said that by incorporating amendments to PC25 they were satisfied potential adverse environmental effects would be adequately avoided, remedied or mitigated.

“Harvey said that after five years of ‘hard slog’ and hurdles, the decision meant proper work is likely to be able to start after this year’s ski season. In terms of the longer term $500m ‘demand-driven’ development, an extra capital raising via potential private equity partners would be explored. Porter’s director of development Michael Sleigh said the commissioners had asked for some amendments to the plan change but these mainly involved the company providing more information on the new Crystal Valley ski trails, and how the company would mitigate any environmental impact from these. ‘At full capacity it could cope with 300,000 skiers over a season, which would be like Coronet Peak’, Sleigh said.

“Economist Geoff Butcher said that by the time the field was fully developed, the wider economic benefit to the region would be $92m a year with 730 fulltime equivalent jobs created. In the peak winter period the Porter’s field employed about 50 staff but with the development of the village and Crystal Valley that seasonal number would jump to 500 by 2015, he said’. Another Coronet Peak but with no Queenstown on its doorstep, simply won’t work. In the words of another famous Aussie battler: “Y’a dreaming mate”. The commissioners need a reality check.

So Who Are Harvey’s Russian Mates?

Martin Van Beynen in the Press (8/3/12) gives us some answers: “The Australian investor behind the $500 million Porter Heights ski field proposal has vouched for his Siberian business partners and investors. PSA Capital, the company behind the project, is owned by Simon Thomas Harvey, of Sydney (40%), and Siberians Oleg Kirillov (20%) and Yuri Koropachinskiy (20%). Kirillov and Koropachinskiy are based in Krasnoyarsk, the centre of rugby in Russia. The other 20% of the company is owned by Yury Zelvenskiy and Vladimir Uchitll, who are based in Moscow. The Russian investors are said to be putting millions of dollars into a proposed expansion of the Porter’s Ski Area near Christchurch.

“PSA owns the shares in Blackfish, which owns the ski field and is behind the development plan for the ski area, including an alpine village, hot pools and a 1.8-kilometre gondola ski-lift. PSA is owned by Washland Holdings, of Sydney, Stalakton Investments, of Cyprus, and Tulip Developments, of Belize. The Russian investors do not hold any directorships of Blackfish or PSA. The interests of Zelvenskiy and Uchitll are represented by Roman Zelvenschi, who owns the RomanZ Media Group based in Ontario and specialising in digital media.

“The Press asked the Overseas Investment Office for details of the checks done on the Russian investors to satisfy the Overseas Investment Act regarding good character of foreign investors, but it was unable to provide details before deadline. The Office said it needed to consult third parties before any details could be released. Harvey said he had checked out his Siberian colleagues on several trips to Russia and was satisfied he was dealing with ‘very smart’ entrepreneurs who followed Western-style business practices. ‘I care where [investment] comes from and that these guys are reputable. They are an absolute pleasure to deal with’, he said.

“In Russia he was assisted by his Sydney-based friend and Russian speaker Michael Schnieder and by Sydney-based adviser Dimitri Aronov. His Siberian colleagues were now Australian residents and wanted to apply for Australian residency. They wanted to move to Australia for the lifestyle and to bring up their families. Their dealings had started in 2005 when the Siberian businessmen, who knew Schnieder, were looking for investments and put $A2m into a real estate trust that had property in Vietnam, Thailand, Bali and Australia, Harvey said. Kirillov and Koropachinskiy are principals in a Siberian company called SM Group, the company’s Website says”. See our December 2006 and December 2010 commentaries for details of Blackfish’s original purchase of Porter Heights, and our February 2011 commentary of Harvey’s sell down to PSA.

Other July Decisions

Rangitatau NZ Limited Joel Leston Reed and Ann Denise Reed as trustees of The Joel and Ann Reed Family Trust, United States of America (97.4%), Benjamin Joel Reed, United States of America (1.7%), Peter David Reed, United States of America (0.9%) received approval to acquire a freehold interest in 152.9 hectares of land at Rangitatau East Road, Wanganui. The vendor was Rangitatau Forestry Partnership No. 2 New Zealand (100%); the consideration was $1,150,000. According to the OIO: “The land is a pinus radiata forestry block. The Applicant intends to harvest and replant the forest in around ten years time. The acquisition is intended to enhance the Applicant’s existing investment in New Zealand forestry and further build the capital value of its assets”. See our August 2010 commentary for details of the Reeds’ other forestry purchases here.

Robin Otto George Haab & Astrid Haab-Zuber Switzerland (100%) received approval to acquire a freehold interest in 1,387 hectares of land at 1243 Mataikona Road, RD 9, Masterton. Consideration was $5,750,000. The vendor was Alic Francis Foreman, Alan Wallace Gawith & Alan Peter Laing as trustees of the Mataikona Family Trust New Zealand (100%).The OIO states: “The Applicants intend to immigrate to and reside permanently in New Zealand on the property. The Applicants’ application for residence has been approved in principle by New Zealand Immigration”.

W Hereward & Co Limited JRA & LE Nottingham & Family, Isle of Man (100%) received approval to acquire a freehold interest in 4.1 hectares of land at Butterfish Bay, Paewhenua Island, SH10, Mangonui. Consideration was $375,000. The vendor was Paewhenua Estates Limited Clive Ashley Johnson, New Zealand (100%).The OIO states:” The land subject to this application is in the 109ha ‘Farm Park Development’ on Paewhenua Island near Mangonui in Northland.

“The developer’s objective in creating the Paewhenua Island farm park is to create a world-class farm park development by rehabilitating a run-down bull farm and creating a vineyard as a productive element alongside a residential subdivision (thereby providing both a special environment for the residents and an amenity for the local community). The Applicant intends to use the land for private dwellings and grounds. The acquisition will provide further capital for the continued development of the Paewhenua Island farm park”. See our August 2010 commentary for details of the Nottinghams’ other Paewhenua purchase here.

Campaign Against Foreign Control of Aotearoa,
P.O. Box 2258
Christchurch.