From the Securities Lending Trading Desk

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There has been a strong demand for Transocean Ltd shares following an agreement to buy out public shares from Transocean Partners LLC for $249 million. Meanwhile, CAR Inc, one of the largest car rental firms in China, experienced a slump in growth after Didi Chuxing and Uber China announced a merger. Europe has seen borrow demand rise for Italian banks as they tap equity markets to raise capital.

Below please find the August 9 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

We saw an uptick in demand for shares of Transocean Ltd, the world’s largest offshore driller. This followed an agreement to buy out the public stakes in affiliate Transocean Partners LLC for about $249 million in stock. The company stated they will issue around 22.7 million shares and partnership owners will get 1.1427 shares for each unit they hold, a 15% premium to the July 29 closing price. The deal is expected to close in the fourth quarter. Transocean is cutting costs in the face of declining demand for its offshore rigs and stiff competition after prices for oil and natural gas fell. The increased demand drove fee levels slightly higher this week.

Fitness tracker maker, Fitbit Inc.remains a focus of directional demand as the share price continues to rally, climbing roughly 30% since hitting a 52-week low back on 6/27. Fitbit was one of the biggest losers during the first six months of 2016 after their stock plummeted 59%. The company recently reported 2nd quarter earnings of $0.12/share. which beat estimates by a penny and also maintained revenue guidance of $2.5 billion and EPS of $1.12-$1.24 a share, sending their stock price higher. Fitbit Inc is still the top producer in the wearable electronics industry with 24.5% of the market, but that is down from 32.6% last year. Investors remain concerned that competition from tech behemoths Apple and Samsung will crowd the market and threaten profitability.

Asia Pacific

Shares in one of China’s largest car rental firms slumped to a record low last week after news of a tie up between two leading car-hailing services firms. CAR Inc, which has a share of around a third of the car rental market in China, faces an uncertain future after Didi Chuxing and Uber China announced they would merge together putting an end to a fierce competition battle between the two firms. Analysts believe the deal is likely to reduce demand for car rentals and further compress CAR’s profit margins, which have already been under pressure due to increased competition. We continue to witness strong securities lending demand for CAR Inc, which has seen its market value decline by over 50% in the past year.

Following a tough year Noble Group Ltd shares rebounded in Singapore as the company’s new rights shares began to trade on the exchange. Shares in Noble Group have been volatile after the company posted losses and its rating was cut to junk. The company will announce its quarterly results this week which should provide additional details on the commodity trader’s performance and funding and plans for asset sales. We have seen strong lending demand for Noble Group Ltd.

Europe

Borrow demand rises for Italian banks as they tap equity markets to raise capital. Following stress test results, shares in the Italian banking sector come into focus as many need to increase capital to shore up their capital ratios. Although Italian regulator CONSOB has extended its short ban until October 5th, there is strong appetite to borrow as a EUR 5b rights issue is imminent. Appetite for Unicredit has steadily increased as the company has plans for a rights issuance in early 2017. The market is awaiting rights details in both names, but healthy spread between ordinary shares and rights are expected, and fees are anticipated to trade in the moderate to high range.

First-half earnings for Air Liquide SA, the French industrial gas company missed estimates and plans for a rights issue. As gas demand from the industrial sector remains sluggish, Air Liquide is looking to find growth in the acquisition of the leader of U.S. packaged gas, while extending its cost-cutting program. Following its acquisition of Airgas, Air Liquide expects growth this year in net profit and net earnings per share, including the effects of a capital increase planned for September or October.