From the Securities Lending Trading Desk

Ubiquiti Networks Inc. are a greater focus of interest as the share price declined more than 35% after a report from Citron Research accused the company of fraud. Last week, Geely Automobile hit a record high as automakers rallied in Hong Kong on speculation of strong support from Chinese policy makers for the electric vehicle sector. Meanwhile in Europe, we are seeing a substantial stake increase in Anglo American which has given rise to securities lending demand.

Below please find this week’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 

Ubiquiti Networks Inc. (UBNT) are a greater focus of interest as the share price declined more than 35% after a report from Citron Research accused the company of fraud. The report questioned the company’s revenue recognition, distribution network, high executive turnover, and lack of seasoned executives. Only a few short days later UBNT went on to raise their revenue guidance and increase their existing buyback to $100M, with no justification of the revised numbers. Amid all of the investor concern, UBNT’s CEO, Robert Pera, has had very little to say in his company’s defence. We are seeing fee levels trend higher as this report has fuelled increased bearish sentiment and utilization has climbed.

Merger news was rekindled between T-Mobile US Inc. and Sprint Corp. and sparked speculation that more consolidation via merger would follow. Multiple sources reported the all-stock merger talks had resumed and the likely completion would give T-Mobile the majority stake in the combined company. While the T-Mobile and Sprint merger would generate huge synergies, there are also considerable hurdles and concerns regarding regulatory approval and risks. While merger reports around these two companies have been swirling since February, they have yet to come close to terms. Finally, this has also sparked speculation that tower companies, which could suffer in the near-term, could ultimately be a buy on weakness, according to reports. Some of the tower companies that could be in focus as a result include: American Tower Corp., Crown Castle, and SBA Communications Corp.

Asia Pacific 

A remarkable stock market rally by one of China’s largest property developers has sparked the interest of both regulators and analysts who are becoming increasingly concerned about the state of the company’s finances. Shares in Hong Kong-listed Sunac China Holdings have risen by a staggering 470 per cent this year to rank among one of the world’s top performing stocks. The property developer has been on an aggressive acquisition spree in the past year, much of it heavily financed with debt, which has sent its net gearing to almost 400 per cent, according to some analyst estimates. We have witnessed renewed securities lending demand for Sunac China in recent weeks, as some investors have begun to position themselves for a correction in the share price in the near future.

Geely Automobile hit a record high last week as automakers rallied in Hong Kong on speculation of strong support from Chinese policy makers for the electric vehicle sector. The Chinese government is discussing a plan to allow foreign carmakers to set up wholly owned electric-vehicle businesses in its free-trade zones, which would be a landmark departure from requiring foreign automakers to set up joint ventures with local manufacturers. The proposal is broadly positive for Geely, which also recently announced that it would exceed its 2017 sales target of 1.1 million vehicles and reach a target of 2 million vehicles in 2019. We have seen a modest increase in securities lending demand for Geely in recent weeks.

Europe 

A substantial stake increase in Anglo American has given rise to securities lending demand. Anil Agarwal, an Indian mining billionaire, is buying 1.5 billion pounds ($2 billion) worth of additional Anglo American Plc shares, increasing his stake in the blue-chip British miner that’s benefited from a recovery in commodity prices. Agarwal said the purchase, was a family investment and he doesn’t intend to make a takeover offer for the company. As per previous investments Agarwal is issuing a bond with an attractive yield that allows him the right to repay investors in Anglo shares in order to finance the deal. Due to this exchangeable element, shares have seen increased borrower demand this week as funds look to short the stock allowing them to cover if Agarwal takes up this repayment option.

Sibanye Stillwater launched $450 million offering of senior unsecured guaranteed convertible bonds due 2023. The proceeds are expected to be used to refinance the outstanding portion of the bridge loan raised for the acquisition of Stillwater Mining. Strong securities lending demand has been seen. However, levels have remained fairly modest with enough stock being available to borrow in the lending market in order to hedge the deal.