From the Securities Lending Trading Desk

car

This week, automotive retailers were in focus as fundamental demand heats up amid speculation recent rallies are overdone and with the listing of CarGurus. We are seeing China’s Great Wall Motor Company Ltd shares hit a two year high following news of a potential joint venture with BMW AG.  Meanwhile in Europe, securities lending demand increases ahead of rights record date for South African investment holding company Stadio Holdings.

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 

IPO’s continue to garner Securities Lending attention. This week data center operator, Switch Inc. (SWCH), is the focus. SWCH raised $531 million and marked the nation’s third-biggest initial public offering in tech this year. The IPO has not been without controversy as shares held by the company’s founder, Chief Executive Officer and Chairman Rob Roy carry 10 times the voting power of those sold to the public. According to a Bloomberg article, “Investor advocacy on the issue helped persuade major index providers S&P Dow Jones Indices and FTSE Russell to shun companies that give public shareholders little to no voting power. MSCI Inc. is weighing whether to do the same.” Notably, Snap Inc. (SNAP) offered totally voteless shares which raised corporate governance concerns with investors including BlackRock Inc. and State Street Global Advisors. SWCH offered 31.25mm shares at $17.00 and the share price quickly rallied $20.84 on 10/6. Investors concerns regarding SWCH remain similar to those of other stocks that have rallied out of the gate, including share price volatility, sustainability, valuation and overall uncertainty inherent in a new issue.

Automotive retailers were in focus this week as fundamental demand heats up amid speculation recent rallies are overdone and with the listing of CarGurus. AutoNation, Inc. (AN) remains a long term focus of fundamental demand. Over the past few months we have seen demand, utilization, and daily price all trend higher. The share price rallied to a six-month high on 9/26 in anticipation of a rebound in auto sales due to the recent hurricanes. However, while the bulls pushed AN’s share price higher, bears saw a new entry point for short positions. Since 9/26, AutoNation’s share price has been unable to sustain the recent gains and has retreated nearly 8%. In related news, this week auto dealers underperformed the broader market as attention turned to CarGurus’ (CARG) initial public offering of 9.4mm shares at $16.00 on the NASDAQ. The share price of CARG quickly rallied to $29.00. The sector remains one to watch as opposing views and new listings create increased demand.

Asia Pacific 

Kobe Steel Ltd shares plunged last week after it admitted to fabricating strength and durability data on aluminum and copper products. Japan’s third largest steel producer admitted to providing false information on the strength and durability of two products triggering a collapse in its share price. Kobe Steel Ltd’s decline intensified as concern grew that comprised material had been used in the production of cars, trains and aircraft by other major Japanese manufacturers. Kobe Steel’s market value dropped by over USD1 billion following the announcement. We’ve seen strong lending demand for Kobe Steel Ltd.

China’s Great Wall Motor Company Ltd shares hit a two year high following news of a potential joint venture with BMW AG. Great Wall Motor Company Ltd announced it is working on a deal with BMW AG to outsource production of Mini branded cars to China. News of a potential deal with BMW triggered a 14% surge in Great Wall Motor Company shares which were later suspended from trading pending the release of a formal statement. We’ve seen moderate lending interest for Great Wall Motor Co.

Europe 

Convertible bond issuances continue to drive securities lending demand. Genfit is offering EU150 million convertible bonds into new shares for existing shares due October 16, 2022. Genfit fell as much as 9% as strong hedge fund demand to sell the stock to hedge the deal increased. Securities lending fees have spiked to reflect the increase in demand

Securities lending demand increases ahead of rights record date for South African investment holding company Stadio Holdings. Large recalls coinciding with the record date of the ZAR 640 million rights issue has caused securities lending fees to increase. The rights issue goes record on October 13 and hedge funds need to hold stock over record period to be entitled to subscribe to the rights offer and the over sub component. Subscription period runs from October 16 – 27.