From the Securities Lending Trading Desk

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In Asia, automakers and car rental firms are in the spotlight this week.  Meanwhile, stock buy-backs and convertible bonds are driving demand in the US and Europe.  

Below please find the May 17 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

Monster Beverage Corporation announced a stock buy-back which resulted in immediate demand. The modified “Dutch auction” tender offers investors the opportunity to purchase shares of its common stock for cash at a price per share price of not less than $142 and not greater than $160, for a maximum aggregate purchase price of no more than $2bln, expiring at 5pm on June 8. Monster closed at $153.10 on May 10. Shares were allocated based on best bid.

Merger deals with stock options are driving demand for Charter Communications Inc./Time Warner Cable and Baxter International Inc./Baxalta Inc.  Recently, the US Federal Communications Commission (FCC) approved the merger of Charter Communications, Inc. and Time Warner Cable. A spread between Time Warner holders’ two elections heavily favors one over the other, fueling demand. This is the largest deal on record for Charter and would quadruple their subscriber base when completed. Charter has been a long-term directional focus name amid much uncertainty as to whether the merger would gain approval. The merger between Baxter International Inc. and Baxalta Inc. continues to see borrower demand. Baxter has offered to exchange up to 12.8 million shares of Baxalta common stock at a 7% discount and 1.4026 exchange ratio cap. Shares of Take No Action (TNA) Baxter have been actively located.

Asia Pacific

Nissan Motor Co. agreed to purchase a 34% stake in troubled automaker Mitsubishi Motors Corp. following a fuel-economy testing scandal. Mitsubishi will sell about 237.4 billion yen ($2.2 billion) in shares to Nissan, which will make Nissan its largest shareholder. It was revealed in April that Mitsubishi manipulated fuel economy data on four minicar models, two of which are supplied to Nissan, and has improperly tested other Japan vehicles since 1991. We have seen an increase in lending demand for Mitsubishi since the scandal was announced.

One of China’s leading car rental firms is under increasing pressure on concerns that future regulations may impact future earnings. Last week, shares in CAR Inc fell to its lowest value since making its trading debut in Hong Kong in September 2014. Analysts expect first quarter results, which are due this week, may come in below expectations. Potential tighter regulations in the car rental market and increased competition from rival firm, Didi Kuaidi, have resulted in a gradual increase in negative sentiment towards the company’s outlook. We continue to witness robust securities lending demand for CAR Inc, which has seen its market value decline by over 50% in the past year.

Europe

Securities lending demand has increased following two convertible bond (CB) announcements. CBs are an alternative to rights issues which enable companies to raise capital and avoid negative impression on the share price. MTU Aero Engines and Nexity issued €500mln and €270mln convertible bonds respectively, both with a 7-year maturity.

Germany’s Wirecard ranks highest among the “most shorted ahead of earnings” this week.  Wirecard has performed well after it became the target of activist short seller Zatarra Research, which alleged the firm of fraud. Short sellers have remained in the name — short interest is 24% of shares outstanding despite a 33% price increase since late March. Shares are in high demand and trade in the 20% fee range.