Short-seller Muddy Waters takes short position in renewable energy firm Hannon Armstrong -report

By Carolina Mandl

NEW YORK (Reuters) -U.S. short-selling firm Muddy Waters on Tuesday revealed a short position in energy company Hannon Armstrong Sustainable Infrastructure Capital.

Currently, seven brokerages rate the Maryland-based energy company “buy” or higher, three have it on hold and one on a sell rating, with an average target price of $55, according to Refinitiv.

The short seller, founded by investor Carson Block, questioned in a research note Hannon Armstrong’s accounting, saying the company inflates its earnings and cash flows.

“Hannon Armstrong is a prime example of how public market incentives can warp a company into relentlessly pursuing value destructive investments in order to feed a Wall Street growth narrative,” Muddy Waters wrote.

The short-seller said the Maryland-based energy company has changed its business model since its initial public offering in 2014 to an investment company in unimportant projects from a fee-based one.

Hannon Armstrong denied any wrongdoing in a statement, saying Muddy Waters’ report is an attempt to mislead and confuse the market.

“The report is replete with factual errors and numerous inflammatory and misleading statements. Hannon Armstrong’s accounting is fully compliant and indicative of our performance,” wrote Gil Jenkins, a spokesperson for Hannon Armstrong.

Shares in Hannon Armstrong, which invests in wind and solar projects, were down more than 15% in the morning trading.

Hannon Armstrong should have posted a net loss of $235.4 million last year, not a net income of $127.3 million, according to Muddy Waters.

The short-selling firm wrote Hannon Armstrong has booked tax benefits it is not entitled to, inflated gains on securitization and refinanced loans to its projects without proper disclosure to investors.

It also believes most dividends paid by Hannon Armstrong in the last eight years were financed by debt or equity issuance – only 9% of the dividends came from its cash flow.

Currently, seven brokerages rate the stock “buy” or higher, three advise on holding and one on selling, with an average target price of $55.

The move comes as Muddy Waters’ founder Carson Block is being probed by the Justice Department as part of a wide-ranging investigation into short-sellers and hedge funds focused on suspected coordinated manipulative trading.

(Reporting by Carolina MandlEditing by Marguerita Choy)