By John Helmer, Moscow
If you could make more money turning bananas into ballet, it’s likely that you couldn’t do it in places where the supply of bananas is plentiful and the price cheap, but the demand for ballet non-existent. But what if in places where the supply of ballet dancers is large and their unit price low, you can use banana sales revenue to kick start a business, where the profit target is a brand-name like the Bolshoi Theatre?
That makes a Russian business, and the best place to sell it is in two of the leading ballet money-markets – London and New York.
And here’s where Vladimir Kekhman (right) has gotten a lift, in the balletic sense of the word, from a London publication owned by Alexander Lebedev (left) called The Independent. Whether Kekhman is also in a pas de deux, in the financial sense of the term, with Lebedev’s National Reserve Bank (NRB) is something he, the bank, and Kekhman are reluctant to talk about.
Before Kekhman opened the London page on his latest business promotion, it has to be remembered that the Russian ballet has been a money laundry with a long history. In 1989, when the Soviet Union’s restrictions on foreign currency transactions by Russian citizens remained tightly in place, ballet dancers at the Bolshoi were officially allowed to receive foreign currency earnings, and to transfer it them abroad for imported goods that were difficult to get in Moscow. “Laundering money through ballerinas is an old story,” acknowledges a Moscow-based businessman who explains what he used to do in partnership with a dancers’ cooperative in 1989 and 1990.
“In those days the dancers had the right to foreign currency, but there was a problem for them in knowing what to spend it on in the local hard-currency shops. So they formed a cooperative in Moscow to pool these funds. These were then used to import computers, cars and other goods. I used to supply computers from Vienna in this business. Some of the cars were picked up in Vienna – who knows if their owners agreed. Many of the ballerinas didn’t know how to drive.”
Fast forward 22 years. The story that was picked up in Lebedev’s Independent on November 17 was that the Bolshoi lead dancers, Natalia Osipova and Ivan Vasiliev, have agreed to a deal offered by Kekhman to join the Mikhailovsky Theatre in St. Petersburg, which Kekhman runs . The deal terms have not been fully disclosed, but according to some reports, they include an apartment in Moscow where the dancers may live, and later own, on condition they dance out a full five-year contract. The Bolshoi Theatre management is contesting the deal.
How much money Kekhman has put into the Mikhailovsky for renovating the theatre itself, upgrading its operations, and hiring designers, directors and performers isn’t known for certain, because the theatre doesn’t publish audited accounts, and neither does Kekhman’s Joint Fruit Company (JFC) After granting an interview to Shaun Walker, a Moscow reporter for The Independent, he was reported as claiming “he has thrown more than £30m [$48 million] at the theatre, funding renovations, star acquisitions and lavish sets.”
Walker didn’t ask Kekhman where that money came from, and he wasn’t sure, he says in retrospect, that Kekhman has been in financial trouble in London, after defaulting a few weeks ago on a UK High Court order to pay Star Reefers, a London-based banana boat company, more than $16 million. That story was told here . This month, London court sources also report, Kekhman has failed to comply with a November 11 High Court order to disclose his personal and company assets around the world. Parallel court action in the US means that if Kekhman’s theatre company perform in London, New York, and probably Paris and Vienna, Kekhman will have to stay at home.
Even worse: now that Kekhman is claiming a beneficial interest himself in the Mikhailovsky dance company and in Osipova and Vasiliev, if they dance abroad, marshals acting to enforce the London judgements may be able to seize sets, tutus, and pointes, not to mention ticket revenues. According to Justice David Mackie’s ruling, Kekhman is obliged to identify to the court his worldwide assets of more than $25,000 in value, “whether in its own name or not, whether solely or jointly owned, and whether the Defendant is interested in them legally, beneficially or otherwise, and giving the value, location and details of all such assets.” The deadline for disclosure and paying an extra £30,500 ($49,000) in court costs expired on November 24.
Kekhman’s talkativeness to The Independent has not extended to answering questions about the London court case himself, or through his spokesman at JFC, Andrei Semyonov. All Semyonov has said about the financial condition of JFC, from which Kekhman is entitled to an 80% share of the dividends proportionate to his shareholding, is that last year JFC’s net profit came in at $3.54 million. If none of that was re-invested in the company, and all of it paid out in dividends, Kekhman was entitled to just $2.8 million.
Before the 2008 economic collapse, JFC was reported to have been heavily leveraged by Kekhman to finance real estate and other personal ventures; the Mikhailovsky may have been one of them. The real estate assets are believed by St. Petersburg sources to have lost a considerable part of their value. Since 2008, however, JFC has been struggling under heavy debts, and rising costs to service and extend its loans. There doesn’t look to be enough cash for Kekhman to move on to the stage.
Non-Russian financial reports this year itemize new loan agreements and borrowings by JFC from foreign banks, plus the Bank of Moscow, totalling $426 million. The interest rate being charged is high – Libor plus 4.25% to 6%.
JFC’s Russian financial papers record that its long-term debt on December 31 was Rb6.9 billion ($222 million); its short-term debt, $203 million. The debt total in the Russian papers matches the total of new credits announced by the banks. By June 30, the refinancing had increased the company’s long-term debt to the equivalent of $235 million; but cut the short-term debt to $160 million. According to the company’s first-quarter financial report, JFC’s operations were in the red by $2.8 million. In the second quarter, it claims to have made a profit of $1.5 million. The company release for the third quarter turns out to be identical to the second-quarter report, so it isn’t clear how the accounting muddle will be sorted out; and whether JFC is still headed for an end-of-year loss. Comparing the financial performance of the company at June 30 of this year with its performance a year earlier, it is clear that the profit line has dwindled by 85%.
JFC has advanced legal claims for rejecting the jurisdiction of the High Court to adjudicate the Star Reefers bill. But JFC’s bottom-line suggests there may be another reason for not paying its fleet transportation bill – it may not have the money.
So where has the money come from which Kekhman says he has been investing in Mikhailovsky and now the two Bolshoi dancers? According to Walker of The Independent, “it is obvious [sic] that a lot of money has been put in during his stewardship and it wasn’t really within the scope of my article to work out exactly where that money came from (if I was going to do that every time I wrote an article about a Russian spending money on something, it would take some time)…I was vaguely aware of the High Court issues but again, having to write a fairly sizeable piece in a short time and not being aware of the full details of his legal wranglings, thought better to leave out.”
Lebedev’s spokesman Yury Algunov was asked to say if the proprietor of The Independent and NRB has had, or currently has a business relationship with Kekhman or his companies. He says that NRB issued no loans to JFC in 2010 or 2011, but he has not replied to the broader questions, nor to a request to verify NRB loans to JFC before 2010, if there were any. JFC is non-responsive to all queries, including a request to clarify the posting of identical results for the second and third quarters.
According to Walker, “as for [Kekhman’s] relations with Lebedev, I’m not aware of any links, but there may well be, who knows. Certainly links or lack of any with Lebedev or anyone else were nothing to do with why I wrote the story…Alexander Lebedev has no input into editorial policy, I am unaware whether or not he has any kind of business relationship or dispute with Mr Kekhman and considerations of the sort had no bearing at all on either the decision to write the story or the contents of the story.”
Following Kekhman’s interview with The Independent, he gave a second to the New York Times, which reported the results on November 20 .
According to the Times, “Mr. Kekhman’s new life also represents a new — and, detractors say, potentially worrisome — role for wealthy arts patrons in Russia, where post-Soviet business titans are maturing and reaching for new cultural prominence. Unlike the superrich Russians who have been buying professional sports teams or sponsoring galleries or exhibitions, Mr. Kekhman has used his wealth and political connections to shake up two of the nation’s most venerable cultural landmarks. He was appointed general director of the Mikhailovsky at his request in 2007. There are now suggestions that his eventual goal could be control of the Bolshoi.”
On the question of how much money Kekhman has spent on the Mikhailovsky, the Times reports: “Similarly understated, Mr. Kekhman said, were reports that he has spent $20 million of his personal fortune upgrading the state-owned Mikhailovsky and restoring some of its pre-revolutionary architectural splendor since he was named the theater’s general director four years ago. ‘I have donated $40 million, not $20 million,’ he said.” In just three days last week, between the two newspapers, Kekhman’s self-estimated investment fell by $8 million, or 18%.
The Times also reported on the provenance of the money. “That Mr. Kekhman, a titan of a rough-and-tumble business, is in a position to comment on the world’s top ballet dancers is remarkable. He had made millions importing and warehousing fruit. (One banana shipment from Ecuador shared a container with a large quantity of cocaine, but his company said it owned only the fruit, not the entire container, and no charges were filed.)” In the Russian record last year, two cases were reported of cocaine finds by customs officers in banana containers at St. Petersburg and Novorossiysk ports . There was nothing in the reports or subsequent action by Russian Customs to suggest that JFC was culpable in any way.