From the Securities Lending Trading Desk

Electric car symbol

In the Americas, there is renewed focus on Tesla Inc. (TSLA) after the share price plummeted as much as 25% in March. The founding family of one of South Korea’s largest conglomerates is simplifying its complex ownership structure, which is driving demand from borrower.  The desk is also seeing strong securities lending demand for Meyer Burger as the share price continues to drop.

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

There is renewed focus on Tesla Inc. (TSLA) as the share price plummeted as much as 25% in March. The share price has been in a tailspin as pressure intensified over a fatal Model X crash in California. Investors have often questioned TLSA’s ability to meet production targets, and TSLA is scheduled to release first quarter production results next week. Resurfacing concerns about self-driving features coupled with production doubts, have resulted in a sell-off of shares. The share price fell from $345.51 to $257.78 in March and TSLA’s bonds have fallen 4.5 cents on the dollar to 86.5 cents on 3/28. TSLA has been a focus of fundamental interest since going public back in 2010 and, given growing investor concerns, we don’t anticipate demand slowing down anytime soon.

Last week we saw strong borrower demand for Dropbox Inc’s (DBX) IPO. The file-sharing company sold 36 million shares for $21 per share. Since going public, the share price has rallied 50%, closing on 3/28 at $30.98. We often see strong fundamental demand for IPO’s when the share price surges in the early days of trading, as bearish investors question if the valuation is warranted and sustainable.

Asia Pacific

Shares in Blue Sky Alternative Investments fell sharply last week after a report by an activist research firm found discrepancies in its accounts. The Australian-based alternative investment fund manager’s assets under management were questioned by prominent short-seller Glaucus Research Group which accused the firm of overstating the figure by as much as 63 percent. Glaucus also cited a number of factual inaccuracies in terms of the fund’s investment performance and the fees it generates. We saw strong securities demand for shares in Blue Sky last week, whose shares were suspended from trading last Wednesday after slumping by over 9 per cent.

The founding family of one of South Korea’s largest conglomerates is simplifying its complex ownership structure. The Chung family of the Hyundai group announced last week that it will spin off the manufacturing and after-sales parts business of Hyundai Mobis and then merge this spun-off business into Hyundai Glovis, its logistics unit. The family then intends to sell its stake in Hyundai Glovis, to buy more shares of Hyundai Mobis. The restructuring comes after growing regulatory and public pressure for the Hyundai conglomerate to improve its corporate governance practices. We witnessed an increase in securities lending demand for both companies post the announcement of the proposal, which is subject to shareholder approval on May 29th this year.

Europe

The desk is seeing strong securities lending demand for Meyer Burger as the share price continues to drop. On March 22nd, the Swiss solar company Meyer Burger fell as much as 25%, the most since 2006 after announcing lower order inflows for the first two months of this year. The company’s forecast for 2018 sales have come in below consensus, CHF450m-CHF500m vs estimates of CHF546m. The outlook for the rest of 2018 is bleak as analysts lower their forecasts. Securities lending demand has increased following an additional 15% decrease in share price last week.

A number of rights issues traded last week leading to increased demand. Provident Financial had traded with a negative spread at around GBP 10 pence a share meaning the nil paid rights line has been in high demand. Two Italian names Anima Holdings Spa and Immobiliare Grande Distribuz have both traded slightly positive at around EUR 2 cents per share, meaning open demand for their ordinary line has been strong. Finally in France, Altran Technologies SA spread has hovered around negative EUR 9 pence per share however much of the demand for the rights has been for the oversubscription option with a pro ration rate based on the number of rights exercised.