From the Securities Lending Trading Desk

New United States

We have seen increased demand for Globalstar, Inc. as the share price retreats after hitting a six-month high in December. Seadrill Limited’s share price fell to a six month low last week, amid reports the company is facing difficulties refinancing their debt. There is also increasing interest in Spanish lender Banco Popular Espanol and strong long-term securities lending demand for South Korean companies due to increasingly strained ties between China and South Korea.

Below please find February 14 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 have seen increased demand for Globalstar, Inc. as the share price retreats since hitting a six-month high in December. On 12/23 the share price closed at $1.84, which was nearly double the share price the week of 12/12, after the FCC announced the adoption of Globalstar’s revised petition for terrestrial authority. However, since hitting the high, they have been unable to sustain that valuation, falling roughly 24%. Investors have long been concerned with Globalstar Inc.’s capital raising needs and infrastructure development. There has also been much uncertainty as to the potential value of international opportunity. Globalstar has been a long term focus of directional demand but a recent spike in utilization has started to push fee levels higher.

Seadrill Limited’s share price fell to a six month low last week, while competitors gain, amid reports the company is facing difficulties refinancing their debt. Recently Seadrill’s management suggested the company could require as much as $1bn in debt and in doing so shareholders value could be significantly diluted. In addition, management is focusing on capital preservation to the detriment of fleet preservation and new rig contracts. As a result, the share price has declined more than 50% since 12/12. Despite largely positive news in the industry of producers looking to hire offshore rigs, Seadrill remains a focus of directional demand as investors fear their weak balance sheet, struggles to restructure their debt and headwinds from seemingly more financially stable competitors such as Ensco and Noble Corporation.

Asia Pacific 

A surge in Chinese visitors to South Korea may reverse in 2017 amid increasingly strained ties between the two countries. Arrivals from China continue to decline as South Korea presses ahead to deploy the THAAD missile defence system with the United States to counter a nuclear threat from North Korea. The plan has upset the Chinese government on concerns that the radar will not only track China’s military capabilities but could also be part of a broader US strategy to extend its military alliance network from Japan all the way down to the South China Sea. Companies that have been most impacted include cosmetics firms AmorePacific Corp and LG Household & Health Care as well as Hotel Shilla, South Korea’s second-largest duty free operator. We continue to witness strong long-term securities lending demand for Hotel Shilla which has seen its share price decline by approximately 40 per cent in the past year.

Singaporean offshore oil-service provider Ezra Holdings Ltd shares fell sharply amid solvency concerns. Ezra Holdings stock price plunged 38% in Singapore trading following a filing which showed it may have to write down as much as $170 million in debt. Investor concern was compounded by news that Forland Subsea AS, a Norwegian vessel owner, may apply for Ezra to be wound up over payment of 25.5 million Norwegian kroner ($3.1 million). The offshore oil-service industry has struggled to recover from the collapse in oil prices since their high in 2014 resulting in a wave of debt restructuring. We have seen strong long term lending demand for Ezra Holdings Ltd.

Europe 

Deja-vu for Banco Popular Espanol. Last week saw increased interest in the Spanish Lender as it announced its fourth quarter results for 2016. Losses for this period were EU3.5 billion, compared to EU173 million this time last year. Although the losses can be attributed to 5.7 billion worth of provisions in bad loans and mortgage floors, the latest update brings into question the banks current CET1 ratio of8.2%, a shortfall of EU1.8 billion from the 11% benchmark. Last year the bank engaged in a rights issue in order to provide new capital and although the latest update doesn’t say that further funding will be required, many analyst believe the latest update will provide much speculation.

The Swiss holding company Leonteq AG has come into focus after it announced new cost saving measures and the withdrawal of its 2017 dividend. The company issued a statement that on top of the CHF10 million measures announced in December, a further CHF18 million in additional savings will take place in 2017. Net income for 2016 came in at CHF17.2 million meaning a 75% decline in pre-tax profit from a year earlier. Levels have increased in line with increased demand and utilisation.