From the Securities Lending Trading Desk

Mall indoors interior set.

Demand has increased for one of Australia’s largest department store operators after the firm announced a major loss. Borrowers are also seeking shares of Longfin Corp. (LFIN) as some investors question the fintech company’s valuation. In Europe, multiple rights issues are the headline story.

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 saw increased demand this week for Tencent Holdings Ltd. (TCEHY), Asia’s most valuable company, as the share price declined following news Naspers Ltd. is selling their stake in the company. Tencent, the Chinese operator of the WeChat messaging service, declined roughly 12% following the statement. According to Bloomberg, “the stake Naspers bought for just $32 million in 2001, when Tencent was an obscure Web firm in a nation where few people used the Internet, is now worth $175 billion.” The sale of 190 million shares is worth $10.6 billion based on Tencent’s closing price in Hong Kong on Thursday. The stock price has the potential to continue to fall as the company also recently announced an additional share offering which typically has a dilutive effect on the share price.

There has been increased demand for Longfin Corp. (LFIN) as some investors question the fintech company’s valuation. LFIN went public on December 13 at $5.17 per share. The share price shot up to $72.38 the following week after announcing plans to acquire Ziddu.com, a blockchain microfinance startup. While the share price has not been able to sustain those highs, the stock is rallying once again, closing at $61.86 on March 22, up nearly 80% for the month. While investors try to make heads or tails of whether this valuation is warranted, bears have set their sights on LFIN. Demand has spiked, pushing fee levels higher and higher.

Asia Pacific

One of Australia’s largest department store operators is in turmoil after announcing a major loss. Myer Holdings recorded a first half loss of A$467 million ($366 million) after writing off a staggering A$538 million in goodwill and brands. The retailer’s executive chairman Garry Hounsell admitted that recent changes to the company were rolled out far too quickly, that it overlooked its traditional customer base, and inadequately responded to online competition which in turn adversely affected profitability. The loss has prompted the suspension of its interim dividend which was due this month and many analysts believe that Myer’s will continue to struggle in the short-term. We have witnessed an increase in securities lending demand for Myer’s in recent weeks, whose shares have declined by over 70% in the past year.

Asian-based suppliers of Apple Inc are under pressure after the technology giant said it is designing and producing its own device displays for the first time. Apple announced last week that it is investing heavily in the production of next-generation MicroLED screens which is currently taking place in a secret facility in California. The move is expected to negatively affect various suppliers which are currently contracted with Apple, including Japanese firms Japan Display and Sharp Corp. We continue to witness strong securities lending demand for both Japan Display and Sharp, whose shares slumped by over 5% during the course of trading last week.

Europe

Altran Technologies SA’s rights issue is attracting arbitrageurs to the lending market. On Thursday, Altran announced the terms of its anticipated EUR 750mm rights issue, the proceeds of which will be used to finance the acquisition of Aricent. Each 17 rights entitle the holder to purchase 8 new shares @ EUR 9.23 each. Rights are in demand as there is an oversubscription on the offer, and a likelihood that rights will be in the money to short against ords. Borrower levels and arbitrage spreads are expected to trade at moderate levels over the next two weeks.

Last week the desk has seen increased demand on a number of stocks due to their upcoming rights issues. In Italy, Immobiliare Grande Distribuz have issued a EU150 million rights offering in order to part finance the acquisition of four shopping galleries and a retail park in northern Italy. Anima Holding Spa announced a EUR 300 million rights issue in order to partially repay financial debt incurred in connection to the acquisition of Aletti Gestielle. Both issues are set to trade from the March 26 until early April. Finally, in the UK Primary Health Properties proposed raising GBP 100 million at a subscription price of GBP 108 per share representing a 5.3% discount to March 22 closing price. The capital raise will enable the firm to continue delivering long term strategies in acquisitions whilst maintain gearing and supporting a progressive dividend policy.