Thu, May 04, 2023 page10

• Short-seller’s report wipes US$10bn off Carl Icahn’s wealth

  • Bloomberg
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  Corporate activist Carl Icahn’s fortune on Tuesday tumbled more than US$10 billion after short-seller Hindenburg Research accused him of using a “ponzi-like” economic structure at his investment company.

  Icahn Enterprises LP, his publicly traded limited partnership that operates as a holding company, fell by 20 percent — the most on record — erasing US$3.1 billion from his fortune.

  Hindenburg also detailed the investor’s margin loan collateralized by his stake in the company, which was not previously accounted for by the Bloomberg Billionaires Index. That lopped off another US$7.3 billion from the net worth calculation.

  

  Billionaire activist-investor Carl Icahn gives an interview on Fox Business Network’s Neil Cavuto show in New York on Feb. 11, 2014.

  Photo: Reuters

  All told, Icahn’s fortune sank by an unprecedented 41 percent to US$14.6 billion, according to the wealth index, dropping him from the world’s 58th-richest person to the 119th.

  Icahn, 87, is the latest billionaire to be targeted by Hindenburg this year after the New York-based short-seller went after India’s Gautam Adani and Block Inc’s Jack Dorsey. He owns more than 85 percent of Icahn Enterprises’ units through various entities, making up the bulk of his fortune.

  Hindenburg said the company, with investments in funds managed by Icahn and controlling stakes in businesses in the energy, automotive, food and other sectors, was overleveraged and traded at an extreme premium to its net asset value. Hindenburg also questioned how the company valued some of its investments.

  In a statement, Icahn called the report “self-serving” and “intended solely to generate profits on Hindenburg’s short position.”

  Icahn has boosted his holding in Icahn Enterprises by taking dividends in the form of additional units. Before Tuesday’s decline, his stake was worth US$15.7 billion, compared with US$8.4 billion in 2017, even as the value of its shares declined 4.9 percent.

  Other unit holders received their dividends in cash, making the company attractive to retail investors, Hindenburg said.

  That was only possible because of Icahn ’s decision to take his payment in units, since the company was consistently operating with negative cash flows, the short-seller said.

  Icahn began reporting a margin loan collateralized by his stake in the company beginning in 2021, at a time when he had about 65 percent of his shares pledged. He boosted the number last year, and as of February, had more than 181 million shares worth US$9.2 billion backing the loan, according to the company’s annual report for last year.

  Margin loans involve lending that is collateralized by the value of the underlying shares. If the value of the stock declines, lenders can request additional collateral or for the loan to be repaid, and have the ability to seize and sell the shares if a borrower fails to do so.

  Hindenburg criticized Icahn for failing to disclose how much he had borrowed, the interest rate or the loan-to-value maintenance ratio associated with the margin loan.

  Icahn’s second-largest asset is his stake in his investment funds, which he uses to make activist bets. Icahn Enterprises, Carl Icahn and his son Brett are the only investors in the funds.

  At the end of last year, Icahn had US$4.9 billion invested. Hindenburg calculated that the fund could be down about 17 perent this year, based on an estimate of the performance of its long and short positions.
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