Elon Musk Owes $507 Million to Banks Helping Tesla Raise Capital

Tesla Inc Chief Executive Elon Musk personally owes $507 million (roughly Rs. 3,500 crores) into Wall Street banks involved in Tesla’s Inventory and debt sale, backed by his stake in the Electrical car maker, a Firm filing showed on Thursday.

The lending was disclosed at Tesla’s prospectus on Thursday to increase around $2.3 billion (approximately Rs. 16,000 crores) with new shares and convertible debt, and it was $117 million less than the private loans into Musk revealed in Tesla’s previous prospectus in 2017.

However, Tesla said that if the price of its stock falls and the banks induce Musk to sell some of his shares, that could create additional pressure on the inventory.

Tesla jumped 4% after Tesla disclosed capital raising plans, which soothed investors’ recent worries regarding the Palo Alto, California company and pulled its stock up from two-year lows.

Musk, who owns 20% of Tesla, has obtained private loans from Wall Street banks for ages. A Tesla 2017 prospectus revealed $624 million in loans to Musk.

The submitting on Thursday showed Musk owed money to three banks working on the capital increase.

Goldman Sachs Group Inc has $213 million in loans outstanding to Musk, while he owes Morgan Stanley $209 million, and another $85 million into Bank of America. Goldman wasn’t cited as a personal lender to Musk from the 2017 filing.

These loans are backed by Musk’s shares in Tesla, currently worth a total of about $8 billion. In case Tesla’s stock declines, then Musk could be forced to sell a few of those shares under terms of the loan, according to the Tesla filing.

Mark Williams, a professor of finance at Boston University, said that investment banks can run into conflicts of interest with their deals with companies, their founders and CEOs, analyzing their rules to stay unique businesses separate.

“This is very true in the instance of Tesla where you’ve got an aggressive and outspoken CEO who is prone to pushing the legal limits and profit terms that might run counter to Goldman’s conflict of interest policies,” Williams stated.

Goldman and Citigroup, the top-line publication runners in Thursday’s funds raise, both have”sell” ratings on Tesla’s stock, which is uncommon but not outstanding on Wall Street.

At the end of 2018, Musk and his trust had 13.4 million Tesla shares pledged as security for private debts, based on another filing.

Tesla, Morgan Stanley and Goldman Sachs declined to talk about the loans. Tesla includes a policy that caps executives’ borrowings at a quarter of their value of these shares pledged as collateral.

Together with Tesla repeatedly pushing back predictions for turning a profit, its stock has fallen 27% year to date.

Musk intends to purchase another $10 million worth of shares as part of the sale announced on Thursday.


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