From the Securities Lending Trading Desk

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There has been strong demand for US telehealth platform Teladoc Inc. this week following a 37% rally. In China, the growing trend for greater health awareness has caused some Chinese consumer stocks to see short interest soar in recent months. Meanwhile in Europe, borrowers are seeking Citigroup Inc.’s convertible bonds, which can be exchanged to Telekom Austria shares.

Below please find the August 2 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 

Teladoc Inc. was actively located this week as the share price has rallied. Teladoc’s share price has gained as much as 37% over the past month. The company is the first and largest telehealth platform in the United States; however competition remains a huge concern for investors in the company. Virtual medicine has increased its profile as reimbursement models are rapidly changing, and as the consumer engagement demands increase in the health care market. Recently the company announced plans to acquire HealthiestYou for roughly $125 million in cash and stock, which has been well received by investors as the share price trends higher. Increased demand and limited availability are driving fees higher this week for Teladoc.

Despite a slow start to IPO activity in the first quarter of 2016, analysts suggest the recent uptick is indicative of market rebound. According to data from Dealogic, there were 25 initial public offerings in the second quarter of 2016, compared with nine deals in the first quarter. This week we saw increased demand for LINE Corporation, which develops and operates the LINE application for smartphones. The stock went public on 7/13 and the price rallied 26% in its first day of trading to close at a high of $41.58. However, the share price was unable to sustain that high and has been trading between $36 and $40. Typically we see strong demand for IPOs as the lead managers look to securities lending supply to help facilitate their deliveries. In addition, we saw minimal demand for Patheon N.V. which went public on 7/20.

Asia Pacific

Chinese consumer stocks have come into increased focus by bearish investors amid a shift in spending patterns by a more affluent middle class. Instant noodles and snacks manufacturers Tingyi (Cayman Islands) Holding Corp and Want Want China Holdings Ltd have both seen short interest soar in recent months. This can be attributed to an increasing trend for consumers to purchase healthier food and beverages, thereby rendering both companies’ products less attractive and consequently reducing profit margins. Securities lending demand for Tingyi and Want Want has risen in recent weeks, as investors have expressed concerns about the ability of both companies to adjust their business strategies to reflect a greater awareness for health, amid an increase in obesity cases across the country.

Fortescue Metals Group Ltd’s share price continued to rise in Asia trading following a surge in the price of Iron Ore and a reduction in operating costs. Iron Ore prices have risen 33% in 2016 and Chinese steel output rose to a record last month. The Fortescue Metals Group Ltd share price has risen 133% so far this year amid a broad rally in mining stocks across the APAC region. We saw strong lending demand for mining stocks at the beginning of 2016 which subsided as Iron Ore prices rallied. Mining stock short interest has historically been highly correlated with commodity values.

Europe 

Telekom Austria and Eramet both announced plans for convertible bonds this week. Citigroup Inc. will sell a 400 million-euro bond exchangeable to Telekom Austria shares. The bond, due in 2023, will pay a yearly coupon of as much as 0.635 percent. The exchange price on the security will be 40 percent to 45 percent over Telekom Austria’s share price. Demand to borrow followed the announcement that Carlos Slim’s company will be reducing its stake in the phone carrier, causing the biggest stock price decline in a month. Following the announcement of first half net losses of 141 million-euro, Eramet has won board approval to issue 100 million-euro convertible bonds.

DNO ASA, the Norwegian oil and gas operator, offers Gulf Keystone Petroleum Ltd $300 million. DNO’s proposal reflects a 20% premium to Gulf Keystones current share price. The deal would be structured with both cash ($120m) and shares, giving the option for an early exit to the bond and noteholders who may not be able to hold stock. “Combining these two companies will create further scale and unlock operational synergies that will reinforce DNO’s already formidable presence in Kurdistan,” said Bijan Mossavar-Rahmani, executive chairman of the Oslo-based company.