Boom before the Nadir of our fortunes

AN immaculately dressed Asil Nadir stood up at an investors' presentation at the George Hotel in Edinburgh. It was spring of 1987, and the City tycoon was a frequent visitor to the Scottish capital with his financial road show.

His company, Polly Peck, was one of the top 100 companies in the UK, and building up to a market valuation of 1.7 billion. His business defined the mood and excitement of business in the yuppy era of the 1980s, when Conservative Prime Minister Mrs Thatcher was encouraging a new enthusiasm for enterprise. Even after the crash of 16 October 1987, it seemed to be unstoppable.

Nadir was suave, confident and polished as he faced a room full of pinstripe-suited investors. But one of his key props had not arrived. It was a cardboard box with Polly Peck's emblem on the side proving that the Northern Cyprus' fruit industry was taking off. The box never turned up, lost after its British Airways flight.

Nadir didn't bat an eyelid and joked: "Never mind, I'm sure you all know what a cardboard box looks like. Perhaps it's taken a flight back to Cyprus." The rest of the room shared a laugh. Little did they know it would be Nadir who would be taking a secret flight back to Cyprus in 1993, three years after Polly Peck went into liquidation owing 1.3bn.

As Nadir returned to the UK last week in a bid to fight criminal charges over his involvement in the firm's collapse, memories of the Scottish episode were recalled by those who invested in the business.

Among the Scottish-based investors was Alex Gowans, head of UK equities at Edinburgh Fund Mangers, then based in Melville Street, and a successful listed investment house dating back to 1902. He specialised in small cap companies and recommended that the fund managers buy Polly Peck shares.

"We took a stake in the early 1980s. I remember the price being between 3.20 and 3.30. It had risen from 10p and there was a lot of excitement. At the time we thought we'd missed out," he recalls.

But Gowans and his team were among the first institutional investors and Polly Peck was set to become one of the darlings of the London Stock Exchange. EFM had a near 5 per cent holding at one point, with a value of almost 90 million.

Gowans was introduced to Nadir through Messel, the Polly Peck stockbrokers, on several occasions. "He was a charming individual. Very charismatic and he had a very plausible business plan that we believed worked well."

At the heart of his strategy was the disputed island of Cyprus. In 1974 there was a bitter civil war between the Turkish-backed north and the Greek-Cypriot south. It resulted in an uneasy truce with the island partitioned, with the Turkey half ostracised by the rest of Europe. Nadir wanted to rekindle the economy of the north.

He took Gowans and other fund managers to show them the potential. Gowans recalls flying in Nadir's private jet to southern Turkey and then being flown to Northern Cyprus.

"It was known then as the Turkish Federated State of Northern Cyprus and you couldn't fly directly from the UK. Asil Nadir wanted to build operations in Northern Cyprus and he took us to a large television assembly factory in Turkey. He showed us his textile businesses, making cotton clothing. He took us to see orange and lemon groves in the sunshine and all the fruit was rotting on the trees."

Nadir built a cardboard factory and started to export all the oranges, lemons and apples. "I knew him quite well. It was a very exciting time because Polly Peck was not the only acquisitive business. Everyone remembers it now because of what happened with Asil Nadir but there were a few smaller UK companies that were growing through acquisition and doing deals."

Companies such as International Signals and Harris Queensway were also being encouraged by investment bankers and investors to grow quickly. Nadir was involved in more deals to buy companies such as Cornell dresses, Wearwell, Sansui, and he invested in the Niksar bottled water plant in Cyprus. There were more businesses being tagged on. But it was Polly Peck's acquisition of Del Monte, the world's largest tinned fruit and juice business and part of RJR Nabisco, the tobacco and foods empire broken up in the infamous 'Barbarians at the Gate' episode involving the record-breaking leveraged buy-out by Kohlberg Kravis Roberts.

This required Polly Peck to raise huge amounts of debt for finance and it was an audacious step. EFM's stake was diluted as Polly Peck issued new paper. While the investors were able to take profits for their pension funds, they began to reconsider the weight of their portfolio. The Observer newspaper began to delve into the business structure and speculation began about Nadir's shaky empire. Gowans and his colleagues at Edinburgh Fund Managers began to think that Polly Peck had stretched itself too far.

"After the takeover of Del Monte all the financials were shown in dollars rather than sterling and that wasn't so good for us. We began to look more closely at a lot of the conglomerated companies," he says.

"We did a full cash flow analysis of the combined businesses and it didn't stack up. We had a meeting of all our UK investment team in Edinburgh. The unanimous decision was to get out. So we sold all of our shares."

Edinburgh Fund Managers did extremely well, netting tens of millions. But it was the exception. Each year it had also been able to take dividend and profits but it could now see the writing on the wall. Looking back, Gowans still feels Polly Peck presented a plausible story.

The collapse of Polly Peck in 1990, the investigation by the Serious Fraud Office and then Asil Nadir's flight back to Cyprus in 1993 turned the story into a major political affair, but it was the business world and thousands of small stock market investors who were hurt by the fall-out. After 17 years, these memories are still very raw, but the final chapter is only beginning.