From the Securities Lending Trading Desk

coal and shovel

We’ve seen an increase in demand for VimpelCom Ltd after Telenor ASA, a major shareholder, initiated a public offering in the US. Weight Watchers International’s share price is down over 57% YTD, making it a focus of bearish sentiment. In Asia, a decline in supply has led to a 40% rebound in China’s spot coal price. Whilst in Europe, Air Liquide announced a EUR 3.28 billion rights issue to finance the acquisition of US company, Airgas.

Below please find the September 20 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 

Fee levels are trending higher for VimpelCom Ltd., after major shareholder, Telenor ASA, commenced a public offering in the United States of 142.5 million of its VIP American Depository Shares in a secondary share offering. The news sent the telecom and digital services company shares down to a 6-month low. VimpelCom will not receive any proceeds from the sale, and many investors saw the move as a vote of no-confidence from Telenor. As a result of the sale, Telenor’s stake in VIP will go down from roughly one-third to one-quarter. Telenor may also launch exchangeable bonds for VimpelCom stock in the future. The temporary influx of shares in the market could put short-term pressure on the stock.

Weight Watchers International, Inc. continues to be a focus of bearish sentiment, as the share price remains under pressure; down over 57% year to date. With $2 billion in debt and an EPS that has fallen over the last four years, Weight Watchers CEO James Chambers abruptly announced that he was stepping down. The company faces competition from the wearable tech sector, including popular step-counting fitness gadgets like Fitbit, and free weight-loss apps. With shares available to borrow becoming scarcer in the market, coupled with mounting recall pressure, fee levels are advancing higher.

Asia Pacific 

Declining supply has led to a 40% rebound in China’s spot coal price despite continued weak demand. The Chinese government’s shift towards clean energy and the nation’s slower economic growth has reduced domestic coal consumption. Inventory at Qinhuangdao port has however fallen to historic lows, echoing the country’s aggressive reduction in coal output, which fell by a record 10.5% in 2016’s first seven months from a year earlier. Coal production cuts may persist in the long term amid oversupply. We continues to see long term lending demand for Chinese coal producers Yanzhou Coal Mining Co Ltd and China Coal Energy Co Ltd.

Luxury goods sellers in Hong Kong continue to suffer from sales declines as fewer mainland shoppers visit Hong Kong and Macau. Sales in Hong Kong’s tourist districts fell 22%, as the number of Chinese visitors fell 7% during the last fiscal year. Reduced spending due to China’s economic woes and the strong dollar contributed to the slump, however retailers have been provided with some relief due to declining rents in the city. We continue to see strong lending demand for Prada Spa and Chow Tai Fook Jewellery Group Ltd.

Europe 

All eyes are on Rocket Internet’s Thursday earnings announcement German e-commerce firm, Rocket Internet has been operating at a loss since it went public in 2014. The name has been a top short since its IPO and utilization has increased from 75% to 87% over the past month. Rocket currently trades in the warm lending fee range (100-150 bps). If negative sentiment intensifies in the marketplace we forecast an increase >90% utilization, which should translate into special lending fees.

Air Liquide announced a EUR 3.28 billion rights issue. The French industrial producer of healthcare gases launched a 3.28bn Euro one for eight rights issue to finance the acquisition of the U.S company Airgas. The subscription price was heavily discounted at EUR 76 with a trading period running from 14th September to 28th September. Strong securities lending demand was seen to secure the ordinary shares to be able to participate in the over sub. The traditional arbitrage between the ordinary shares and the rights has been deeply out of the money which has increased demand to reverse strategies and short the rights.