I’m still in the game, says Murray

By Ian Fraser

Published: The Sunday Times

Date: May 9th, 2010

The tycoon, whose wealth has shrunk, tells Ian Fraser he has made mistakes but is bullish on the future

Sir David Murray is bloodied but not unbowed. He cannot disguise the fact that the past year has been a disaster for him. He was revealed two weeks ago as the biggest loser in The Sunday Times Rich List, having seen his personal fortune drop from £500m to £110m.

He still owes Lloyds Banking Group some £609m (down from £759m). He must find a credible buyer for Rangers football club. And to qualify for continued support from Lloyds, the bank expects him to introduce much greater transparency into his business dealings, stop using cross-guarantees within his labarynthine business empire, shift his private equity group to family ownership, and refocus his business on an area he best understands: metals trading.

The bank also expects Murray to liquidate three-quarters of the commercial property assets of Murray International Holdings (MIH), his company, to pay off debts by 2015.

This is the pound of flesh demanded by Lloyds — which has agreed to write off £150m of the money owed by MIH in a debt-for-equity swap — from Murray after nearly a year of negotiations. The businessman compares the experience of the past 12 months to being “stuck in a maze”.

Murray told The Sunday Times: “We’ve been unlucky but we’re here, we’re fighting. We’re in a far better place than we were a year ago and we will not have to revalue our property portfolio again, because we’ve taken the hit and you had to do that. Our bank’s secure, property is on the way back, the football club is winning and metal prices are going up.”

In bullish form, Murray predicted that in MIH’s current financial year, which ends on June 30, it will be back in the black due to a rebound in the steel price and because there will be less of an obligation to make property write-downs.

He declared that his goal is to get back to his metal trading roots, conceding that, when taken together with his private business interests, which are not part of the MIH group, he had probably expanded his business empire too far, too fast. “As a first-generation private company, we maybe got too big. . .to have done it in one generation is pretty amazing.”

However, he refused to blame his bank, HBOS, or Peter Cummings, its disgraced former head of corporate banking, for urging him to pursue rapid growth or for being over-generous in its lending. Murray said: “I think we were all guilty. . . however, I take responsibility for my company.”

This is about as reflective as Murray gets. He sees little point in dwelling on whether he would do things differently if he could wind back the clock. The past year — which has involved intense negotiations between Murray and Lloyds Banking Group, the loss of trusted lieutenants including Ian Tudhope, and the beginnings of a restructuring of his business — has been a testing time for the Ayr-born entrepreneur.

He admitted that things started to go pear-shaped in August 2008, when Rangers, which is 92%-owned by MIH, crashed out of the UEFA cup after losing 2-1 to Kaunas, a defeat that cost Rangers £10m in lost revenues. This was the first in a series of blows Murray describes as a “quadruple whammy”.

The following month HBOS, which had extended £759m in loans to Murray’s group, effectively went bust. Murray said: “That was the first intimation that things were never going to be the same.”

The bank’s largesse had been a critical factor in driving Murray’s success during the property bubble. MIH’s debts rose from £233m in 2004 to £759m in 2009, with the bank’s preference being for these funds to be channelled into the commercial property market. Under Cummings, HBOS’s corporate division also had a penchant for forming a complex series of joint-venture companies with property tycoons such as Murray in which it would take chunky equity stakes.

Soon after the subprime crisis hit, British commercial property valuations nosedived, collapsing 43% between the peak of the bubble in May 2007 and the nadir of August 2009. Murray and his ilk were left dangling for about six months after HBOS was rescued by Lloyds TSB and bailed out by the British government.

The bank, now 43% state-owned, was initially too preoccupied with repairing its own balance sheet to make decisions about what to do with the likes of Murray. It was not until April 2009 that Truett Tate, head of Lloyds’ wholesale banking arm, turned his attention to cleansing Cummings’s toxic legacy. There was no guarantee Murray’s empire would survive.

Today, Murray can breathe a sigh of relief. After a year of negotiations, Lloyds chose to give him the benefit of the doubt. On April 30, it emerged Lloyds wrote off £150m worth of debt in exchange for an additional 12% stake in the company. This places a valuation of £1.25 billion on the MIH Group, which some analysts describe as “generous”.

MIH, whose full accounts have not been made available by Companies House, has said it made losses of £174.8m on sales of £648.2m in the 17 months to June 30 2009. The losses were largely due to writedowns on its commercial property portfolio. Murray said: “The bank has been very fair with me.”

He thinks MIH’s diversified business model, the fact that the group did not revalue its property assets and the fact HBOS/Lloyds jointly owns many of his property assets helped to ensure the bank did not pull the plug on him.

But he also feels his own personal experience helped him through. “The one thing you can’t buy at a time like this is experience. I’d been through it in 1992 and I’d been through a few traumatic things [he lost both legs in a car crash]. You must hold firm, stick to your plans and stick to your beliefs.”

But there remain unanswered questions about Murray’s business empire, including what will happen to the £70m that Rangers owes MIH and whether the bank rolled some of his debt into equity simply because it was unrepayable.

As published in the business section of The Sunday Times Scotland on May 9th, 2010. To read other articles about David Murray, click here.

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2 Comments for “I’m still in the game, says Murray”

  1. Ian,

    I think you will find that any value attributed to MIH is likely to be enterprise value. Lloyds now own 24% and my view is that this will value the group at just over £600 million. That value is the same as the debt and I would suspect the equity value will be £0.

    Enterprise value in my eyes being the total of debt and equity

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