From the Securities Lending Trading Desk

Ship in shipyard

We’ve seen a surge in shares of dry bulk shippers as a result of the US presidential election. Luxury Retailers in Hong Kong were offered encouraging news after Chow Tai Fook Jewellery Group revealed a recent slump in profits, which showed some signs of easing. New securities lending demand has been seen in Europe for Foxtons following their Autumn Statement.

Below please find the December 1 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 

Shares of dry bulk shippers surged following the presidential election, due to optimism that global economic growth will draw increased demand. Up until this point, it has been a tough year for dry bulk carriers with weak Chinese demand for commodities hammering the industry. Companies have been forced to idle their ships while several operators have filed for bankruptcy protection. The Baltic Dry Index, a global measure of shipping rates, reached the lowest point in its thirty-one year history back in February. Some of the more sought-after names by borrowers in this sector include: Dryships., Scorpio Bulkers, Eagle Bulk Shipping, and Danaos Corp.

Rockwell Medical Inc. continues to be a heavily located name after the company reported a third quarter loss, sending their share price falling to a 52-week low. The maker of products used in the treatment of kidney disease and anaemia, posted revenue of $12.8 million versus the $15.4 million estimate. Analysts have widened their consensus-loss estimate for the fourth quarter to 12 cents-per-share from a loss of 10 cents-per-share and cut their sales estimate to $13.8 million. Meanwhile, Rockwell shares are down roughly 40% for the year. The considerable short interest, coupled with limited streetwide liquidity in the borrowing market, has sent fee levels higher.

Asia Pacific 

Hong Kong luxury retailers were offered some encouraging news after Chow Tai Fook Jewellery Group Ltd revealed its recent slump in profits showed some signs of easing. The retailer announced net income dropped 22% for the six months ended September, easing from the 42% decline in the same period last year. The Hong Kong luxury retail market has been weak for a long time and investors took the news as a sign that the slump may have bottomed. Shares in Chow Tai Fook Jewellery Group Ltd and Sa Sa International Holdings Ltd surged following the earnings announcement. We have seen long term lending demand for Chow Tai Fook Jewellery Group Ltd and Sa Sa International Holdings Ltd.

Further consolidation in the Asian container shipping industry took place last week after South Korea’s second-largest bulk carrier agreed to buy some of the assets of its failed rival Hanjin Shipping. Korea Line Corp emerged as a surprise winning bidder as it signed an agreement to buy Hanjin’s Asia-US business for 37 billion won ($31 million), marking an entry point for the company into the container shipping business and helping it to challenge the dominance of its larger rival Hyundai Merchant Marine. We have witnessed long term securities lending demand for Korea Line and broader interest in the Asian shipping sector as the industry continues to struggle with weak demand, over-capacity and depressed freight rates.

Europe

New securities lending demand was seen for Foxtons after the Autumn Statement. The UK Chancellor of the Exchequer announced on Wednesday that they will force estate agents to scrap letting agency fees. Foxtons dropped around 11.5%, the most in four months.

Merger and acquisition in the UK spurs on securities lending demand. TVH made a final cash offer for Lavendon at 205p/share. The offer values Lavendon at £348m and is at a 57.4% premium to the closing price on Sept. 16. Finally, Advent International is to buy Brammer in a recommended all cash offer of 165p/share, or £221.5m. Acceptance condition will be 75%, with an expected completion to be effective by February.