From the Securities Lending Trading Desk

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We have seen an increase in bearish bets for Fred’s Inc. after the discount retailer announced it would buy 865 Rite Aid stores. Demand for Sharp Corp has surged as investors bet that the company’s investment in OLED technology will pay off. In Europe, reports last week of new accounting rules that require airlines to include the cost of leasing in their adjusted debt has put the French carrier Air France into focus.

Below please find the January 10 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

Under Armour, Inc. has been a focus of refinancing this week after the share price closed at a 52-week low on December 30. Some bearish investors may be looking to close out their positions of Under Armour, despite an increase in holiday sales for sporting-goods companies amid increased store traffic. According to First Data, “comparable-sales growth at sports apparel retailers such as Lululemon, Nike and Under Armour accelerated…Same-store sales from Dec. 1-26 rose 8.4%, driven by gains in both traffic and amount spent.”

We have seen an increase in bearish bets for Fred’s Inc. after the discount retailer announced it would buy 865 Rite Aid stores for $950 million. Shares nearly doubled in one day following the news and some investors question if the recent rally is warranted. The deal hinges upon Walgreen’s Boost Alliance bid to acquire all outstanding Rite Aid shares which will then divest the 865 stores to Fred’s. If the deal collapses, so will Fred’s shares price. In addition, some analysts suggest that even if the deal does goes through both Fred and Rite Aid’s business models are structurally unprofitable and it will not bolster revenue as much investors expect. The increased demand has sent fee levels for new borrows higher.

Asia Pacific

Sharp Corp surged in Tokyo trading as investors bet that the company’s investment in OLED technology will pay off. The increase was driven by the news that Sakai Display, which is backed by Sharp Corp and Foxconn Technology Group, announced plans for 61b yuan ($9 billion) plant in Guangzhou, China. We saw an increase in lending demand for Sharp Corp as investors bet the shares were overbought.

Shares in Korean pharmaceutical manufacturer Celltrion have been rising in 2017 after it announced strong annual revenue projections. The company has begun selling its Remsima product in the US following FDA approval and continues to see market share increases in the EU. We have seen strong long term lending interest in Celltrion due to speculation the shares are overvalued.

Europe

New accounting rules have put Air France in the spotlight. News last week of new accounting rules that require airlines to include the cost of leasing in their adjusted debt has put the French carrier Air France into focus. Reports suggest that the airline’s indebtedness is set to rise to EU11.2 billion from EU4.2 billion in 2017 due to 40% of its planes currently being leased rather than owned.

Capital raising remains strong with a number of names announcing rights issues in the first quarter of 2017. Dios Fastigheter, the Swedish property manager announced a 4 per 5 rights issue with a subscription price of SEK 31 that begins trading on the January 9th. Laird PLC, the UK technology provider, announced plans to raise GBP 185 million through a rights issue in order to deal with substantial competition it’s now seeing from Asian competitors. Full details have yet to be announced. Interest remains strong for the pending capital raising for the Italian company Unicredit (EUR 13 billion) and French company Amundi (EUR 1.4 billion) who are yet to announce when their rights will trade in Q1.