From the Securities Lending Trading Desk

While the impacts of the Trump Administration’s recently announced solar tariffs are weighed, SunPower Corp. remains a focus of directional demand. Short interest in Yahoo Japan has steadily increased in recent weeks ahead of an impending strategic update by one of its largest shareholders. In Europe, the Dutch company, Koninklijke BAM Groep, gives rise to increase in 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

Fee levels are on the rise in US for Chinese ADR, 500.com Ltd (WBAI), as the share price has rallied 63% in February. com Ltd is an online sports lottery service provider in China. WBAI recently reported net revenues were $6.5 million (USD), compared with roughly $2.9 million (USD) for the second quarter of 2017, and flat for the third quarter of 2016. Despite the headwinds caused by a voluntary suspension of online purchase orders for lottery products, WBAI has been able to post revenue gains. The suspension came in response to a notice related to self-inspection and self-remedy, of unauthorized online lottery sales, from several oversight groups in the People’s Republic of China. While it is unknown how long this suspension will be in place, some investors question if WBAI will be able to maintain this revenue growth pace and the recent share price gains.

While the impacts of the Trump Administration’s recently announced solar tariffs are weighed, SunPower Corp. (SPWR) remains a focus of directional demand. Despite the initial concerns regarding the effects of these tariffs, SPWR remains positive on their position in the market. Management is looking for an exclusion for their interdigitated back-contact technology, which isn’t currently made by other U.S. manufacturers. The company remains confident in their business model, even if they are not granted the exclusion because they offer an entire solar solution, not just the panel. This results in higher sales per watt manufactured and protects against the margin squeeze the tariffs could create. While many questions and uncertainties are still unanswered, we are seeing fee levels for SunPower trend higher. We anticipate continued demand for SPWR and others in the sector as the effects of these tariffs are yet to be seen.

Asia Pacific

Short interest in Yahoo Japan has steadily increased in recent weeks ahead of an impending strategic update by one of its largest shareholders. Altaba Inc, the 2nd largest shareholder of the Japanese media company with a 35.56% stake, said it will provide more information about its intentions in a conference call with analysts and investors on 27th February. This has fuelled unconfirmed reports that Altaba may pare down part of its stake in Yahoo Japan. We have witnessed strong securities lending demand for Yahoo Japan in recent weeks with short interest climbing to as high as 6.5% of shares outstanding, the highest since 2006.

Singapore commodity trader Noble Group Ltd gave guidance that it will report another vast loss for the final quarter of 2017, potentially bringing 2017 losses as high as $5 billion. Last month, Noble Group Ltd announced an initial $3.5 billion debt restructuring deal, however the plans are now entering a critical phase following negative feedback from top shareholders. Noble Group Ltd has experienced three years of crisis following debt write-downs and accounting scandals. We have seen long term lending demand for Noble Group Ltd as the share price declined.

Europe

The Dutch company, Koninklijke BAM Groep (BAMNB NA), gives rise to increase in securities lending demand. BAMNB NA, the residential and non-residential construction services company, fell as much as 7.4% after missing profit estimates for the year and posting a bigger than expected fourth quarter pre-tax loss. Short interest as a percentage of float is up to 23.5%, up from 18% last week. Marshall Wace, Worldquant and PDT Partners all have substantial short positions.

Capital raising interests this week are via Phoenix and Ence. Ence are to issue senior unsecured convertible bond with an aggregate principal amount of EU160m. Phoenix announced proposing a £950 million rights issue, fully underwritten on a stand-by basis, in order to finance the cash consideration of the acquisition of Standard Life Assurance. Phoenix expects to publish a combined shareholder circular and prospectus for the Rights Issue and the Acquisition in mid-April 2018. General Meetings expected to be convened in early May 2018, with the Rights issue launching once the requisite resolutions are passed. Under those expectations, commencement of trading in new fully paid shares are expected mid May 2018.