Nadir Hasn’t Hit Bottom, but the Financier May Yet Prove Aptly Named : Finance: In London, the City buzzes over the collapse of his sprawling Polly Peck empire. Its guiding spirit could fall further yet.
The summer’s preoccupation in Britain’s financial community was the trial and conviction of four top executives in the long-running Guinness stock manipulation scandal.
This fall, the leading concern of Britain’s brokers, bankers and analysts is a much wider ranging imbroglio: the collapse of the Polly Peck International food, electronics and leisure conglomerate and the stunning decline of its chairman, Asil Nadir.
On Thursday, a British judge placed the company into a form of reorganization similar to Chapter 11, effectively taking Polly Peck out of Nadir’s hands and ending the Cypriot financier’s weeks-long effort to put together a financial rescue package for the firm.
The court intervention, requested by Polly Peck’s board when Nadir came up $60 million short in his campaign to satisfy creditors owed nearly $2 billion, followed more than a month of turmoil.
Trading in the London-based company’s shares was suspended Sept. 20 after panic selling that day reduced the value of Polly Peck stock by more than $1 billion. In the course of an afternoon, company shares dropped to 1.08 pounds from 2.43 pounds.
The frenzy was touched off when word leaked out that Britain’s Serious Fraud Office had raided the offices of South Audley Management, an investment company with ties to Nadir. Rumors of an insider trading scandal whipped across the City, London’s financial district. The SFO interviewed Nadir for several hours that afternoon.
Although the SFO has refused to reveal the purpose of its investigation, Nadir later said the inquiries were “substantially related to the alleged impropriety in dealing in Polly Peck shares.” He added that the investigation was “unrelated to matters within my knowledge.”
Within a week, Polly Peck suspended payments on its debt, $400 million of which is believed due before the end of this year.
The company’s 70 or so creditor banks had given PPI until Nov. 9 to find the money and devise a business plan to guide it through the debacle. As part of the agreement with the banks, Nadir had pledged to step down as chairman, although it was thought he would remain chief executive.
But with the court intervention, that plan has now been discarded. A court-appointed administrator will run the company and attempt to repay creditors.
The British financial community’s vast interest in the case is attributable to more than the fantastic sums, the whiff of scandal and the strong possibility that one of Britain’s premier companies will be sold off piecemeal.
There also is intense scrutiny because this is Polly Peck, one of the most unusual companies in Great Britain. The story of Polly Peck and its autocratic leader is almost literally rags to riches.
“Polly Peck is very much the creation of one person,” says a London-based merchant banker familiar with Nadir’s career. “That one person is the company. It’s a very unusual situation for a publicly traded company in Britain.”
Nadir, a Turkish Cypriot who came to Britain in 1964, built up his father’s garment business through the 1970s. In 1980, he bought a stake in the failing textile company Polly Peck. Although the company’s journey through the 1980s was more akin to a roller coaster ride than a rocket, it ended the decade with a reputation as the world’s best performing stock over the previous 10 years.
Along the way, Nadir became one of the wealthiest men in Britain. Climbing from a meager 5 pence a share in 1983, Polly Peck was valued at nearly 4 a share in 1989. The company bought Del Monte’s fresh fruit operation for $875 million last year. It even purchased a controlling interest in the Japanese electronics company Sansui.
Polly Peck and its financial machinations grew against the backdrop of international politics.
Nadir is a close friend and political ally of Turkish President Turgut Ozal and has extensive holdings in that country and his native Cyprus. Among his Turkish holdings are an empire of news publications that have provided unwavering support for Ozal.
As soon as the Serious Fraud Office investigation became known last month, the Turkish government complained to the British government that a campaign was being waged against Nadir by Greek Cypriots. A week later, during a meeting in New York between Ozal and British Prime Minister Margaret Thatcher, the Turkish leader reportedly demanded to know if there were any proven instances of wrongdoing involving either Nadir or Polly Peck. Thatcher is said to have told him that the case would stay in the hands of criminal investigators.
Nadir’s links to Turkish northern Cyprus are intricately related to his political muscle in Turkey. But those links also have caused him political and business problems elsewhere.
In the Turkish Republic of Northern Cyprus, an entity borne of Turkey’s 1974 invasion of Cyprus and recognized only by Turkey, Polly Peck is the biggest taxpayer and the second largest employer, after the state. Besides operating companies involved in manufacturing and citrus exports, Nadir has been building a string of luxury hotels.
The creation of a thriving tourist trade is viewed as the best way to boost the sluggish economy in the northern sector of the partitioned island. Turkey hopes to wean its 16-year-old offspring from the massive subsidies that the tiny republic now requires.
But Polly Peck’s investments in northern Cyprus have outraged the Greek Cypriots in the much larger and prosperous southern region of the island. In 1983, Polly Peck shares plunged when the Greek Cypriot government claimed that the company was involved in the seizure of Greek property in northern Cyprus.
Nadir was able to steer the company through that crisis, which saw the greatest drop in the company’s value--until last month’s free-fall. Even through the recent problems, Nadir had steadfastly sought to protect his Mediterranean holdings.
With 28% of Polly Peck already in hand, Nadir surprised London’s financial community last August by announcing that he was taking the company private. But he left the City completely baffled--and caused the firm’s shares to dip--when he announced five days later that he was abandoning the plan.
Then came the events of Sept. 20. Polly Peck suspended payments on its massive debt. Reports began to emerge about an enigmatic web of Swiss and offshore companies and their connection to Polly Peck, Nadir and the questionable trading of Polly Peck shares. Large blocks of company shares appear to have been traded just before important company announcements.
No charges have been filed in the case, which is still under investigation. Nadir acknowledged that the company was having “liquidity problems,” but denied wrongdoing.
He also revealed that creditor banks had sold 10 million Polly Peck shares in which he had an interest during the frenzied trading of Sept. 20. The shares had been held by the banks as collateral on loans. His bankers’ sale of those shares and other blocks reduced Nadir’s stake in Polly Peck to just over 24%.
But Nadir’s statement did not clarify the extent of the company’s financial problems, nor did it identify their cause.
Until the decision to seek court protection, Nadir had been jetting around the globe looking for sources of cash. He repeatedly said he would be able to secure huge amounts in Turkey and northern Cyprus, but in fact produced little. A much-discussed bailout from the Turkish government fell through. Polly Peck did sell one hotel in northern Cyprus to the government, however, for $12 million.
Now the court-appointed administrators--accountants from the firms of Coopers & Lybrand and Deloitte & Touche--will have to make what they can of Polly Peck’s assets.
It will be an arduous task. Little is known about Polly Peck operations in Turkey. And because of the ongoing nationalist struggle on Cyprus, the chances of selling any businesses in northern Cyprus to foreigners are considered nil. Indeed, the Turkish enclave’s finance minister said last week that he would aggressively fight any such deals.
Much attention is being focused on the fate of Del Monte, which is considered the jewel in the Polly Peck crown. The parent company had said it was contemplating the sale of a minority stake in the fresh fruit operation on the New York Stock Exchange.
The administrator could attempt to sell Del Monte outright. Complicating that scenario, however, is the fact that rival Dole Food Co. is already for sale.
