From the Securities Lending Trading Desk

new growth

Merger news continues to drive Securities Lending demand in the U.S. Fee levels are spiking quickly for recent IPO, Snap Inc. as the share price tumbled after the company reported a $2.2 billion loss. The world’s second-largest shipbuilder, Hyundai Heavy Industries, has split into four companies as it seeks to navigate through one of the most prolonged slumps in the industry. In Europe, everyone is talking about TalkTalk Telecom’s dividend scale back.

Below please find May 16’s 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 

Merger news continues to drive demand in the U.S. Recently, Hedge Fund Research, Inc. reported that hedge funds extended gains in April 2017 and largely attributed the performance to Event-Driven strategies. Two large mergers were announced last week that resulted in strong broker demand. Sinclair Broadcast Group Inc. is buying Tribune Media Co. for about $3.9 billion in cash and stock according to Bloomberg. Also, Straight Path Communications Inc. has been a strong focus as they received a $3.1 billion takeover offer from a bidder yet to be officially named but believed to be Verizon Communications Inc. This comes after AT&T agreed to acquire Straight Path for $1.6 billion, or $95.63 a share.

Fee levels are spiking quickly for recent IPO, Snap Inc. as the share price tumbled after the company reported a $2.2 billion loss. In addition, the tech and social media services provider reported decelerated user growth in its first earnings report as a public company. The share price lost more than 20% on 5/11, closing at just $18.05 and down from $22.98 the previous day. According to Bloomberg, this year was supposed to be one in which technology start-ups would easily go public. Analysts suggest this is a warning to anticipated IPO’s for this year such as Uber, Pinterest and Spotify that are highly valued but money-losing companies.

Asia Pacific

The world’s second-largest shipbuilder has split into four companies as it seeks to navigate through one of the most prolonged slumps in the industry, which has resulted in tens of thousands of job losses. Hyundai Heavy Industries began trading as four entities last week, focusing on construction equipment, electric machinery, industrial robots and shipbuilding, with a combined market value of $14 billion compared with $10 billion in March when the company first announced its plans. Hyundai Heavy hopes that the spin-off of these units will help it focus on their core competencies and reduce its net debt. Whilst the move has been welcomed by many analysts who believe it will be easier to accurately value each line of the business and attract new investment, unions have objected claiming it will result in further job losses. We have witnessed increased securities lending demand for the spin-off companies, in particular Hyundai Electric Energy & Systems Co.

AAC Technologies Holdings Inc. fell sharply in Hong Kong trading after short seller Gotham City Research questioned the electronic component supplier’s accounting. Shares fell over 10% following the release of the short seller’s report, the biggest decline since March 2015. AAC Technologies Holdings Inc., which supplies components to Apple Inc., was Gotham City Research’s first Asian target and forms part of a growing number of Asian companies recently targeted by US based short sellers. Gotham City Research questioned AAC’s profit margins and alleged that the company engaged in undisclosed transactions with related parties that are not listed in Apple’s supplier list. We saw increased lending demand following the news.

Europe 

Everyone is talking about TalkTalk Telecom’s dividend scale back. The British telecommunication provider announced that their 2018 dividend will fall by 53 per cent which caused their share price to drop by 12% in early Wednesday trading. The reduction in dividend was due to weaker than expected financial results as the company looks to focus on growth before cash generation and profit. The turmoil follows on from the 2015 cyber-attacks which caused personal data of nearly 160,000 customers to be accessed by hackers costing the firm £60 million in lost revenue.

United Internet looks to take over Drillisch AG in order to compete with larger rivals. The German internet access firm offered to purchase the wireless operator Drillisch AG that would boost the firm’s stake to about 72.7% in a multi-step deal and thereafter make a voluntary public tender offer of 50 euro per share. The merging of these two providers creates a combined 12 million fixed contract customer base generating 3.2 billion euros per annum. The agreement means that the resulting firm will be the fourth biggest wireless operator in Germany looking to take on the likes of Deutsche Telekom AG and Vodafone Group Plc.