Bank and Rangers Bond supporting Murray's empire

earlier) he agreed it was at an unacceptable level.

''But I'd rather have it and be winning something,'' he said. ''I'm

sure we don't want to be seeing massive financial dividends in the short

term.'' As questioning turned to the signing of Dave McPherson and the

departure of Nigel Spackman, the rest of the shareholders seemed to

accept the chairman's long-termism.

In a different context -- Murray's extensive property interests -- the

same exchange could have taken place between the man described as the

most impressive Scottish entrepreneur of his generation and Bank of

Scotland, his principal bankers.

Murray has built a significant property development business because

the bank has put massive resources -- #40m in overdraft facilities and

#11.5m in equity -- behind him. He agrees that its backing is

exceptional but argues that it is based on a close relationship and 16

years of never letting it down.

Yet the UK property sector is one of the hardest hit in this

recession, with a number of major players going under or living in

straitened circumstances. The Murray/Bank of Scotland property interests

cannot be immune from these pressures. Or can they?

In early 1990, Murray paid #8.97m for the Roxburghe Hotel in

Edinburgh's Charlotte Square, including goodwill of #3.98m which is

being written off over five years.

Roxburghe Holdings, formed to buy the hotel, had borrowings in excess

of #10m in the latest available accounts, yet the business itself

produced after tax profits of just #66,128 in the last reported 40-week

period. This May, Edinburgh District Council turned down Murray's

planning application to convert the Roxburghe into offices.

Murray is in talks with bodies like the Cockburn Society on his plans

for the Roxburghe. Some property professionals point out that he paid a

full price near the peak of the last property boom and doubt if he can

even recoup the book value of the Roxburghe, put in the MIH accounts at

just under #5m.

Another Murray development site, 550 acres at Hermiston, west of

Edinburgh, beyond the ring road, in the green belt, also lacks planning

permission. Originally projected as a mixed #200m development, including

a new home for rivals Hearts when they leave Tynecastle, the #2.17m

parcel of land shows annual carrying costs of #700,000 in the latest

available accounts.

At Ibrox, where Murray launched an ambitious #40m scheme in February,

including an offset offer of a #5m replacement police station for free

for Strathclyde region, he himself admits that progress won't come

quickly.

So, a combination of heavy borrowing and stalled development plans

left four Murray property subsidiaries, in the latest available

accounts, still trading although their balance sheets showed negative

net worth. A fifth has ceased trading.

The four continue to trade because other Murray group companies have

guaranteed continued financial support. Auditors Arthur Andersen did not

qualify any of the accounts but drew attention in each case to the net

liability positions.

Murray says the short-term pain is due to the group's policy of not

capitalising interest where there is a long gap between acquiring sites

and getting development started. ''We take everything right through to

the profit and loss account and, in the short term, that hurts us. But

it is the right thing to do.''

Murray insists that his relationship with the Bank of Scotland on the

property front is built on shared long-term objectives -- a 20-year, not

a one or two-year, view. The bank, as it would in the case of any

customer, refuses to comment on Murray's commercial affairs.

The man himself admits that the Roxburghe has the biggest question

mark hanging over it but points out that the proposed M8 extension

passes right through his land holdings at Hermiston. That, he believes,

could release the development potential there in a few years.

In a sixth Murray property company, Bank of Scotland has sent out

mixed signals on how long term its intentions are. At Boland Murray

Properties, a joint venture with Edinburgh builder David Boland, which

refurbished former Government offices at Chesser House in the Gorgie

district of the capital, the bank has converted all outstanding debt

owed to it into preference equity.

The bank is now the de-facto landlord of Lothian region's main poll

tax office and, over a five-year period, is taking more than #1m of the

#1.35m annual rent in guaranteed net dividends from Boland Murray. It

will also take a slice of any disposal gains.

Murray argues that whether the bank takes its money through preference

dividends or interest on the outstanding overdraft makes little material

difference. He adds that the arrangements at Boland Murray are a one-off

deal.

However, that preference share deal has other consequences. The

short-term pressures on his property interests have fed through to

Murray International Holdings, Murray's master company. There, #23.7m of

the #39.5m shown as capital and reserves is accounted for by minority

interests in the last available accounts. The previous year minorities

accounted for just #2.8m out of #24.2m.

Most of that sharp increase to #23.7m is accounted for by two big cash

injections, the #11.5m subscribed by Bank of Scotland for new preference

shares in Boland Murray and the #8.5m subscribed by nearly 7000

supporters for the Rangers Bond. The bond was underwritten by Bank of

Scotland. The bank and the Rangers Bond holders are, in effect,

supporting the balance sheet of the entire Murray empire.

Previously a number of other institutions held some of 5.2 million #1

preference shares in MIH. These shares carried an annual dividend of

10.5% but in January 1991, Murray personally bought them all in and

converted them, including 2.55 million he already held, into 10p

ordinary shares at the apparently unattractive rate of one ordinary

share for every two preference shares. The move saves MIH #546,000 a

year in preference share dividends.

No interim or final dividend was paid on these ordinary shares

(compared with a total of 21.65p a share a year earlier) although a

special dividend of 4.46p a share was introduced. As a result, Murray,

who now holds just over 88% of MIH's ordinary shares, received dividends

of no more than #600,000.

Added to his basic salary of #118,000, that gave Murray an income of

little more than #700,000 from MIH, less than half the #1.7m reported by

the men's magazine GQ in March, which put the Scottish entrepreneur in

fifth place in its survey of top UK earners under 45. Asked about the GQ

figure at the time, Murray, who is 41 this month, said the magazine had

got it about right.

Like Rangers and the property companies, MIH is shown in the last

available accounts to be heavily indebted. Out of group creditors

totalling #105.8m, #51.6m is accounted for by outstanding bank loans and

overdrafts.

The problem with this picture is that it is historical, covering the

year to January 1991. The accounts and those of the property

subsidiaries were not approved by the various Murray boards until

November 1991 and then submitted to Companies House in December and

January, just beating the official one-year submission deadline.

Murray says they were late because he wanted to take the full hit from

the Sunday Scot's demise into them.

Murray, however, is beginning to get some rental income from his

property activities.

Murray has shown in the past that he can make significant development

gains, selling a package of properties at South Gyle to Prudential for

#28m and, he claims, making money out of Port Hamilton, where no

development has yet taken place.

More recently, Murray lost money at Port Hamilton. Another subsidiary,

MIM Properties, suffered a pre-tax loss of #1.79m largely because of

exceptional write-offs of loan notes and interest due, totalling #1.94m

in its last accounts. These were due from Brookmount Murray, a company

in which MIM Properties had had a 5% interest.

Brookmount, one of the property shooting stars of the stock market in

the mid 1980s, was the partner Murray originally chose with whom to

develop Port Hamilton. He eventually sold most of his interest to

Brookmount.

Brookmount was bought by Ford Sellar Morris for #84m in 1989. By 1991,

FSM was itself one of the first property receivership victims of the

recession. The undeveloped Port Hamilton site is now in the hands of the

receivers and the MIM write-off means Murray has given up hope of

recouping the #1.94m he was owed.

Ask Murray about trading conditions since these January 1991 accounts

and he concedes that property remains a very tough marketplace. He says

his core steel stockholding business has done well, despite recession.

He had his best year offshore, he reports, and is supplying new steel

markets for him, like Yarrow and the Marks & Spencer superstore site at

South Gyle.

Nevertheless, can steel, which made around #4m net profit in the year,

compensate for the continuing drain in property, the cost of carrying

all those undeveloped sites?

Murray says that when the January 1992 accounts are finally lodged,

they will show a major turnaround in the group's fortunes.

It's all down, he hints, to one major deal, as yet unannounced. And,

would you believe it, it's a property deal.

It must be some deal. In the latest corporate elite listings in

Scottish Business Insider, the total MIH pre-tax loss in 1991 of #5.5m

has, reportedly, been transformed into a #12.3m pre-tax profit in 1992.

If that's the number which finally appears in the accounts, it will,

indeed, have been some deal.