Russian magnate ordered to sell NZ land after liquor-plant plans fall through

A wealthy Russian has been ordered to sell his rural property after failing to make progress on a promised boutique winery and vodka distillery.

The Overseas Investment Office (OIO) told Mikhail Khimich in May to sell the 10ha near Waiwera, after a one-year deadline to commence work on the project expired.

Read more:
• From Russia with promises: Why have billionaire Mikhail Khimich's NZ businesses struggled?

The Moscow-based former oil mogul, who gained New Zealand residency in May last year, has proved a generous benefactor to Team New Zealand, other sports and horse racing since landing in New Zealand in 2008.

His superyacht Thalia became a fixture on Auckland's waterfront and Mr Khimich attended high-profile events from The Hobbit premiere to the opening of the national velodrome by Prince William.

But his New Zealand business ventures, including Waiwera Water and the Waiwera Organic Winery, have struggled to achieve the global brand recognition he promised.

Mr Khimich first sought OIO permission to buy the rural block in 2010 when he took a 60 per cent stake in the Waiwera businesses of John St Clair Brown, former owner of the Waiwera hot pools, bottling plant and other Waiwera landholdings. At that point, a bottling operation was planned to increase production of Waiwera Water and take the mineral water brand to global markets.

After taking full control of Mr Brown's Waiwera companies, he went back to the OIO for retrospective permission to develop a distillery and winery producing highly pure vodka, gin and rum for the premium spirits market and fortified wine from special grape varieties to be grown on the land. He promised to invest $6 million in a staged development of the property, in the Waiwera valley.

The OIO approved the purchase retrospectively in March last year but imposed conditions including a 12-month deadline on work beginning.

Mr Khimich's Waiwera Group CEO, Lloyd Brown (no relation to John Brown), says the project did not proceed because the land was later found unsuitable for growing the grape varieties intended. Yet Mr Khimich told the OIO a winegrowing expert had assessed 65 per cent of the land as "highly suitable" for grape growing.

Another Khimich land purchase, the 1.8ha Waiwera Holiday Park, fell through while the OIO's recommendation for approval was awaiting sign- off by Government ministers.

The holiday park application came with promises of a luxury spa resort, with apartments and villa accommodation drawing tourists to Waiwera and creating jobs.

OIO staff spent 20 months investigating before giving approval in principle, at which point Mr Khimich pulled out. His lawyers blamed the expiry of a deadline on the purchase (which was conditional on OIO approval) from John Brown.

The vacant holiday park was sold this year in a mortgagee sale and John Brown says he plans legal action.

Government policy encourages foreign investment if it seems likely the country will benefit through jobs, export earnings, increased development and other criteria. In 2011, the Government introduced changes aimed at speeding up the processing of applications.

The OIO has eight assessment staff who analyse around 130 applications a year on average. Their performance target for applications of the Khimich type is to process 90 per cent "within 70 working days of active consideration". In the July-September quarter they achieved 94 per cent.

Correspondence the Weekend Herald obtained shows a big focus with the holiday park application was to establish that Mr Khimich fitted its "good character" criteria. OIO head Annelies McClure said the assessment was "thorough and exhaustive".

"While the OIO always endeavours to meet any contractual deadlines for applications, it is not responsible for any commercial decisions that an applicant may make - including whether to seek an extension to a contractual date."

Who is Mikhail Khimich?

An oil mogul who used to be a top executive and part-owner of Russian oil company Naftasib.

What's he doing in NZ?
Mr Khimich bought into Waiwera's bottled water and hot pool operations in 2010, promising to take the bottled water to the world. He later made applications to the Overseas Investment Office (OIO) to buy land.

What has happened?
Plans - first for a bottling plant, then a vineyard and distillery - on an inland block came to nothing and the OIO has now ordered that the land be sold. Ambitious plans to build a $30 million-plus international spa resort and transform the town also failed to eventuate.