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Saudi Arabia reduced its stake in Tesla less than four months after the automaker's CEO, Elon Musk, settled charges of fraud for claiming the kingdom was ready to support a buyout by management.
The Saudi public investment fund has covered most of its 4.9 percent stake in Tesla with the help of JPMorgan Chase bankers after the market closes on Jan. 17, according to four people directly familiar with the trade.
The agreement means that even if he still holds the shares, the Saudi sovereign fund is little exposed in case of price fall. Its potential gains are also capped if the stock rises, blocking its $ 2.9 billion bet on the company.
This operation, set up by a hedging program set up this month, marks the last turning point in the relationship between Mr Musk and the Saudi state fund overseen by the powerful Crown Prince Mohammed bin Salman.
"To my knowledge, there has been no communication with PIF for months," Musk said in an email to the Financial Times. "I thought that they had probably sold their shares. We do not know if they have any. "
The FT reported in August that the Saudis had built a 4.9 percent stake, making it one of Tesla's top five shareholders. Minutes after the FT revealed this investment, Mr Musk had tweeted that he was about to organize a takeover of Tesla, which had caused a multi-month crisis that had resulted in lawsuits against him. against American regulators.
Chief Tesla claimed later the Saudis were ready to support his buyout plan, thus giving him the badurance of declaring that he had "guaranteed funds". However, the Securities and Exchange Commission accused Musk of "false and misleading statements", resulting in a settlement in which he paid a personal fine of $ 20 million and agreed to resign as president.
The new cover arrangement of the Saudis proved to be well chosen. A day after it was put in place, the stock fell sharply when Musk revealed that Tesla was cutting 7% of its workforce and warning that it was going through a "very difficult" period.
On the day of coverage by Saudi Arabia, the Tesla stock closed at $ 347.26 against $ 2.9 billion for the PIF stock. Stock prices have since declined by more than 16%. The Saudis and JPMorgan refused to comment.
Tesla's action is a battleground for short sellers and those who believe in Mr. Musk's vision for society, which means that every piece of information – including tweets – of the company or its founder has the potential to send moving actions. Musk's badertion that he was fully backed by a takeover spurred a spike in Tesla's shares, which resulted in heavy losses for investors who had bet against the company.
Saudi Arabia was seen as unlikely support for Tesla, given its dependence on oil, but under Prince Mohammed, the kingdom sought to diversify its economy and to turn away from oil.
The FT previously said the Saudi sovereign wealth fund had initially contacted Mr Musk to buy him newly issued shares of the company, but had been postponed.
Instead, he bought shares in the open market in April and May, when the shares of Tesla traded at less than $ 300. The $ 347.26 coverage means that the Saudis are probably sitting on a gain from their investment. Tesla shares fell on Monday after the FT revealed Saudi coverage, having lost up to 2% before recovering in the afternoon.
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Mr Musk claimed that the Saudi fund had approached him several times to take the company behind closed doors. The SEC however concluded that it "had no sufficient basis" to badert that it was about to be bought back and that "investor support [was] confirmed".
More recently, the Saudi media bet on Tesla became a central element in the consequences of the murder of journalist Jamal Khashoggi in October at the Saudi Consulate in Istanbul. Asked in an interview a few weeks after the incident on whether the builder would take further investments from Saudi Arabia as a result of the killing, Mr Musk said he "probably would not do it".
The derivative used to cover the hedge is called a stock collar, a tailor-made expensive instrument to finance but which has become popular with investors in the Middle East and Asia.
People with direct knowledge of the trade did not explain why the Saudi fund put the collar in place. These hedges are normally used to protect large farms from volatile price fluctuations; Earning profits without selling shares would allow Saudi investors to exert influence over the company without being entirely subject to price fluctuations.
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