Billionaire entrepreneur Elon Musk has been supporting his technology businesses by buying their bonds and taking out personal loans to acquire their shares.
He has been the biggest purchaser of the bonds issued by his solar-power company SolarCity Corp., including US$90 million of US$105 million it sold in March, the Wall Street Journal reported.
In addition to the bond purchases, Musk, 44, has taken out US$475 million in personal credit lines, buying shares of SolarCity and Tesla when they needed capital, the newspaper said, citing securities filings.
The credit lines are secured with about US$2.51 billion of Musk’s shares in SolarCity and Tesla, based on their closing prices Wednesday, the report said.
The three companies he leads—SolarCity, SpaceX and Tesla Motors—are worth nearly US$50 billion combined.
Musk’s method of supporting his companies is quite unconventional.
Few top executives use their shares as collateral for personal loans because it can be risky to other shareholders and also raises concerns that the executive’s personal interests could conflict with the company’s interests, the Journal said.
If the stock price slides, that could trigger a margin call requiring the executive to sell the shares or put up more collateral to repay the loan.
Tesla, in its securities filings, acknowledged the possibility of margin calls related to Musk’s loans, which it said “may cause the price of our common stock to decline further”.
Some analysts are worried about such a strategy, especially now that SolarCity and Tesla are big public companies.
“As an analyst, it is often a red flag for me when companies and management direct loans between entities they have personal or financial interests in,” said Nathan Weiss, founder and senior analyst at independent research firm Unit Economics LLC.
Musk himself said it is “valid” to question his large personal borrowings and the financial shuffling between SolarCity, SpaceX and Tesla.
“There were a few cases where one company was doing considerably better than another, and I borrowed money,” he told the WSJ in an interview.
But Musk defends his moves as consistent with his philosophy that “if I ask investors to put money in, then I feel morally I should put money in as well”.
“I should not ask people to eat from the fruit bowl if I have not myself been willing to eat from the fruit bowl,” the newspaper quoted him as saying.
But he said his loans aren’t risky to shareholders because they add up to less than 5 percent of his total net worth, which exceeds US$10 billion.
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