The short-seller Hindenburg targeted Icahn Enterprises L.P, the investment firm owned by corporate activist Carl Icahn. The globally renowned short seller claimed that the structure of Icahn Enterprises was similar to a Ponzi scheme. Hindenburg also detailed in its report the investor’s margin loan collateralized by his stake in the company. This had never been factored before by Bloomberg’s Billionaire Index.
The markets immediately responded to the revelations with the holding company losing 20% of its value on the stock market, which amounted to $3.1 billion of Carl Icahn’s personal wealth. Another $7.3 billion were corrected from Carl Icahn’s personal wealth calculation to factor in the investor’s margin loan.
Icahn is the latest billionaire to face Hindenburg’s ire. He owns 85% units of his firm through various entities. Most of his valuation comes from these units.
Hindenburg questioned how some of Icahn Enterprises’ investments were valued. They reported that the funds managed by Icahn were over-leveraged. According to Hindenburg, these funds were traded at an extreme net premium to their net asset value.
Icahn has responded to these reports and described them as ‘self-serving’ to the short bets made by Hindenburg. He claimed that the short-seller was motivated by profits.
Hindenburg on the other hand criticized Icahn Enterprises for not disclosing their debt obligations with clarity.
They pointed out that Icahn had boosted his holdings in his firms by taking payments in form units. This policy allowed the company to pay retail investors in cash, although being short on cash flow.
The key irregularities reported by Hindenburg were cited in the margin loans taken by the enterprise. Hindenburg pointed out that Icahn started reporting margin loans collateralized by his stake in the company only in 2021. By then 65% of his units were already pledged.
Margin loans are credits extended by banks using the shareholdings of an enterprise as collateral for the loans. If the loan is not recovered the bank can seize these shareholdings and sell them on the market to recover their credit.
Icahn Enterprise responded to Hindenburg by issuing a report in which they said “Mr. Icahn has advised that he and his affiliates have sufficient additional assets to satisfy any obligations pursuant to these loans without recourse to the depositary units, he has no need or intention to allow foreclosure on such collateral, and that he is current on all principal and interest payments with respect to the loans”
Before Tuesday, 2nd May, Icahn’s stake was worth $15.7 billion compared to $8.4 billion in 2017, despite a 5% decline in the value of the owned shares. According to the company's 2022 annual report, 181 million shares worth $9.8 billion backing the loans.
Hindenburg has criticized Icahn for not disclosing key details of these margin loan agreements like the exact amount borrowed, interest rate or the loan-to-value maintenance ratio associated with the margin loan.
Icahn's position has gone from the 58th richest person to the 119th richest person after the Hindenburg report.
Hindenburg had taken a short position on India’s Gautam Adani’s enterprises earlier this year. The action caused Adani to lose over 50% of his stock valuation in one day of trading.
