From the Securities Lending Trading Desk

financial graphs on computer screen marcFee levels for SNAP fell significantly following the lock up expiry and quarterly earnings report. Last week, the unprecedented 400% rally in Chinese property stocks showed signs of ending as gains began to reverse. Meanwhile in Europe, Telit Communications cancelled their dividend and fell due to weak interim results.

Below please find the August 15 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

Radius Health (RDUS) announced a convertible bond offering which fuelled new broker demand. Last week, RDUS announced the pricing of $300 million aggregate principal amount of 3.00% Convertible Senior Notes due 2024. The offering closed on 8/14 and the notes will pay interest semi-annually in arrears on 3/1 and 9/1 of each year at the rate of 3.00% per year, beginning 3/1/18. The exchange price on the security will be roughly 32.5 percent over the price of RDUS on 8/8. RDUS had previously been a focus of warm demand as the share price has fallen more than 25% over the past month. Fee levels started trending higher following the announcement.

Fee levels for SNAP have fallen off significantly following the lock up expiry and quarterly earnings report. SNAP has been a huge focus of demand since going public in March. The stock price has traded as low as 50% below its high on 3/3/17 and roughly 20% below the IPO price of $17.00 following SNAP’s first lockup expiry and days before reporting its first quarterly results as a public company on 8/10. SNAP reported a second quarter non-GAAP loss of $0.16 per share after the close Thursday, compared to the loss of $0.13 per share last year. Street expectations were for a loss of $0.15 per share. Though fees continue to ease as the share price declines, fundamental demand persists as bears believe that the stock could continue to fall. Snapchat’s second-quarter daily active users rose only 21 percent, to 173 million, from a year earlier falling short of the 175.2 million expected by analysts, according to financial data analytics firm FactSet. Facebook’s Instagram has continued to steal views and users from SNAP with more than 250 million users as of 8/2.

Asia Pacific

The unprecedented 400% rally in Chinese property stocks showed signs of ending last week as gains began to reverse. Several large developers fell from record highs as investors bet that efforts by the Chinese government to cool home prices will hurt sales in the second half. China Evergrande Group fell 20% since the end of July and ranks among the top decliners. Sunac China Holdings Ltd shares have fallen 7.5% since July and Country Garden Holdings Cois down 3.6%. The declines remain small, however, compared to the stellar gains seen already this year. We have seen long term lending demand for China Evergrande Group and Sunac China Holdings Ltd.

Semiconductor Manufacturing International Corp shares dropped after the Chinese chip maker announced lower than expected second quarter revenues. The announced net income fell short of estimates by more than 20% which was the company’s third consecutive revenue miss. Sales also missed estimates, but by a smaller margin. The company blamed some of the earnings weakness on higher costs involved in getting a new factory up and running. We saw strong lending demand for Semiconductor Manufacturing International Corp.

Europe

Telit Communications cancels dividend and falls due to weak interim results. News announced last week highlighted that the UK-based wireless and service technology provider faced delays in certification of certain products. The most significant of these delays was that of the new LTE chipset which could potentially put $30 million projected revenue and $13 million Ebitda at risk for 2017. The firm’s share price fell as much as 57%, with the company confirming that no interim dividend will be paid this year either. Analysts believe the firm’s long term outlook is positive, having won contracts with many blue chip firms, however in the near-term shorters look to benefit from a year of uncertainty.

Interest increases for Altice NA on M&A news. The Dutch telecom and cable group rose in early trading last Thursday after increasing its stake in SFR Group to more than 95%. The increase is causing speculation that the French firm will look to make a bid for US Charter Communications in order to gain a bigger stake in the US market and compete with the likes of Softbank. Reports suggest the group are lining up a $185 billion bid for the US firm but have not yet made a formal offer as its unsure, as yet, whether it can raise the debt financing needed to take on the acquisition.