From the Securities Lending Trading Desk

Air Traveling to Asia cities - China Hong Kong

This week, Asia’s largest international airline continues to face challenges after reporting a further decline in passenger numbers last month. We are seeing more fundamental demand for medical device company, MiMedx Group Inc. (MDXG) amid share price volatility, due to negative press. Meanwhile in Europe, a bidding war for Spanish toll and road operator Abertis is driving 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

We are seeing more fundamental demand for medical device company, MiMedx Group Inc. (MDXG) amid share price volatility, due to negative press. Historically, biotech firms’ share prices have been extremely sensitive to market news. In early October, MDXG announced third quarter revenue of $84.6 million — a $20.2 million or 31% increase over 2016 third quarter revenue of $64.4 million. They also reported that revenue for Q1 through Q3 of 2017 was $233.6 million — a $58.5 million or 33% increase over revenue for that same time span in 2016. Although the news would have been expected to create a bump in the share price, negative press and Twitter posts that MDXG has called “short and distort” market manipulation has overshadowed the firm’s strong results. MDXG remains a focus name while the company and its critics defend their positions.

Last week we saw increased demand for CenturyLink (CTL) amid reports the company expects to close its purchase of Level 3 by the end of October. This is a mandatory action and for each share of LVLT, holders will receive 1.4286 shares of CTL and $26.50 in cash. On 10/18, CTL closed at $18.65 which calculates to $53.14339, thus valuing LVLT at a slight premium compared to its closing price of $52.93 on 10/18. The closing date of this merger remains tentative as the companies await FCC approval.

Asia Pacific 

Asia’s largest international airline continues to face challenges after reporting a further decline in passenger numbers last month. Hong Kong-based Cathay Pacific Airways reported a year-on-year drop in passenger numbers of 1.2% on softer demand for several of its long-haul routes. The airline is currently in the process executing a three-year transformation as it battles strong competition from mainland Chinese and Middle Eastern carriers and recovers from a heavy write down due to a wrong-way bet on fuel hedging last year. We have seen an increase in securities lending demand for Cathay Pacific in recent weeks which, despite its recent troubles, has seen its share price increase by over 30% this year.

Japan’s securities regulator announced last week that it will launch an investigation into Toshiba Corp’s financial reporting practices, just days ahead of a critical shareholder meeting. The Japan Securities and Exchange Surveillance Commission (SESC) said it will be investigating Toshiba’s accounting records for a possible violation of the Financial Instrument and Exchange Act just two months after Toshiba’s auditor, PwC Arata, gave a rare “qualified opinion” on the company’s accounts. The probe is likely to focus around Toshiba’s 650 billion yen ($5.7bn) write-down related to its now-bankrupt US nuclear power business, Westinghouse. We have witnessed a moderate increase in securities lending interest for Toshiba in recent weeks.

Europe 

A bidding war for Spanish toll and road operator Abertis is driving securities lending demand. ACS-Hochtief bid EUR 18.8 billion, 14% above the original bid from Italy’s Atlantia, fueling securities lending demand for Hochtief. Spanish builder ACS plans to issue about EUR 5 billion of shares in its Hochtief unit if the bid is accepted. Atlantia will start talks with Criteria, Abertis’s biggest shareholder, regarding improving its bid for the toll road operator. Levels have spiked for Hochtief as brokers look to secure stock in anticipation of a successful bid from Abertis.

Interserve shares dove by more than 30% after the release of another profit warning. The UK maintenance and building group has seen an increase in securities lending demand after releasing another profit warning. Shares have fallen by more than 40% since the news broke, extending its losses to 85% year to date. Short sellers’ interest has risen 11%, increasing from 1% at the end of June according to Markit data.