From the Securities Lending Trading Desk

Oil pipelines

As pre-orders for their Model 3 exceed expectations, Tesla’s share price surges and so does bearish sentiment. More than 25% of all Tesla shares are out on loan, an all-time high for the company. In Europe, the French manufacturer Vallourec announces its terms for the €1bn capital increase which creates strong securities lending demand.

Below please find the April 12 edition of From the Trading Desk, which provides timely commentary about top security earners, revenue drivers and other factors influencing the securities lending market from the BBH Securities Lending Trading Team.

Americas

As pre-orders for their Model 3 exceed expectations, Tesla’s share price surges and so does bearish sentiment. More than 25% of all Tesla shares are out on loan, an all-time high for the company. In addition, Tesla is the most shorted carmaker worldwide at almost twice the level of second place Fiat. TSLA’s share price climbed to $265.42, a six month high, on April 6 2016,  which  is up more than $123 per share since mid-February. Bearish investors question if TSLA will be able to meet the demand for more than 325,000 as only 50,658 vehicles were produced in 2015.

There is increased interest in the merger between KLA-Tencor Corp (KLAC) and Lam Research Corp (LRCX) as some expect the deal to close as early as next week. The chip equipment maker agreed to be bought out by LRCX in cash and stock. The moving stock price of LRCX stock results in ever changing valuation on the three elections that can be chosen by KLAC shareholders. The spread between these options creates a lending opportunity. Based on current valuations brokers are looking for Take No Action elections.

Asia Pacific

Korean pharmaceutical manufacturer Celltrion rose in Seoul trading after the FDA approved its biosimilar version of Johnson & Johnson’s Remicade. The ruling opens up a big market for Celltrion and is only the second biosimilar approved by the FDA. Less expensive biosimilars threaten to take market share as alternatives to branded pharma products currently on the market. We have seen strong long-term lending demand for Celltrion even as shares in the company have rallied.

Increased competition from China and waning domestic consumption has led to one of Australia’s leading steel & iron suppliers to appoint a voluntary administrator to take control of the producer’s business. Arrium Ltd was forced to appoint Grant Thornton LLP to oversee the process after talks for a funding arrangement with a key investor collapsed due to Arrium’s main lenders, who are collective owed around A$1 billion ($760 million), rejecting the proposal. We have witnessed long-term securities lending demand for Arrium, which has been grappling with weak steel prices and faltering demand over the past year.

Europe

The French manufacturer Vallourec announces its terms for the €1bn capital increase which creates strong securities lending demand. The capital increase will be via a €480m rights issue combined with issue of reserved mandatory convertible bonds of €515m. The subscription period will run from 11th April to 22 April inclusive with a subscription price of €2.21.

UK online retailer Ocado continues to rally despite record short interest. Ocado has attracted more hedge fund activity in recent weeks, as the stock rises on speculation of takeovers and tie ups for entry into the US market. The rally has spiked directional activity in the opposing view on the back of the UK supermarket margin destruction being created by the German budget chains, and the overvalued view that the stock price is unsustainable at 130 x P/E levels.