From the Securities Lending Trading Desk

Underground mine passage angle shot

The desk has seen demand for the UK Miner Sirius Minerals (SXX LN) last week as the firm made an offer for USD 400 million of convertible bonds. After years of bearish sentiment, Tesla Inc. (TSLA) is once again the most shorted U.S. equity. Meanwhile in Asia, shares of Kingdee International continued to surge in Hong Kong trading as investors bet on the success of its cloud strategy.

Americas

After years of bearish sentiment, Tesla Inc. (TSLA) is once again the most shorted U.S. equity. After reducing short exposure to TSLA in the first two months of 2018, bears began shorting into the price weakness as the share price started trending downward in late February. According to reports “Tesla’s shares shorted increased by 7.7 million shares, or 28%, as short interest jumped $1.7 billion to $10.7 billion.” The share price started trending lower after TSLA reported delays (or a “time shift” according to Elon Musk) of the Model 3 and amid an investigation by the National Transportation Safety Board (NTSB) after a fatal crash of a Tesla Model X while in autopilot mode. Fee levels have spiked over the course of the last week due to increased bearish sentiment and a decrease in supply as some long holders restricted shares for proxy. However, the share price has begun to recover and fee levels have again started to loosen as the NTSB is expected to officially remove TSLA from investigation and more shares will become available with the passing of proxy record date. With so much uncertainty around TSLA, the focus on this company remains constant.

Directional demand is strong for Geron Corporation (GERN) as the share price soared to a multi-year high on 3/26 of $5.98. Analysts suggest GERN, a small-cap oncology company partnered with Johnson & Johnson (JNJ), has been trending higher ahead of JNJ’s earnings scheduled for release today. Biotech companies are traditionally very sensitive to breaking news and trial results. In the case of GERN, JNJ is expected to comment on an experimental medicine this week. While JNJ has referred to GERN’s imetelstat as a “late-stage blockbuster product,” it is far from guaranteed this will be the view this week. GERN has also been the focus of criticism regarding “the efficacy of the company’s one and only drug candidate, imetelstat,” causing some to wonder if a class action could be coming down the road. Fee levels remain strong ahead of this week’s release from Johnson & Johnson.

Asia Pacific

Shares in Kingdee International continued to surge in Hong Kong trading as investors bet on the success of its cloud strategy. Shares in the application software company have more than doubled so far this year and it’s expected that further gains could mean the stock will be included in the MSCI benchmark indices. While shares rose more than 40% last month, short interest is also rising and Kingdee International remains one of the most heavily shorted stocks in the Hong Kong market. We have seen only moderate lending demand for Kingdee International Software Group following the recent share price gains.

Hong Kong retailer Pou Sheng International Holdings Ltd’s shares fell sharply after shareholders rejected a buyout offer by Pou Chen Corp. Plans for Pou Chen Corp to take retailer Pou Sheng International Holdings Ltd private were announced in January as the retailer struggled to adjust to the changing shopping landscape in China and an increase in online competition. Following shareholders’ rejection of the buyout offer, shares in Pou Sheng International Holdings Ltd fell by a record 30%. We saw strong lending interest for Pou Sheng International Holdings Ltd following the announcement.

Europe

The desk has seen demand for the UK Miner Sirius Minerals (SXX LN) last week as the firm made an offer for USD 400 million of convertible bonds. The guaranteed bonds which are due in 2023 were issued as part of a stage one financing deal in late 2016. The firm noted that offering holders the chance of early conversion will reduce the group’s outstanding debt ahead of the anticipated Stage Two debt financing, which will be designed to cover the remaining mine development costs in North Yorkshire. Following the news of the offer on Wednesday and reflecting the potential dilution, afternoon trading had shares 8.3% lower at GBP 27.7p. The desk continues to monitor demand for the name as we see fees and demand rise off the back of the news.

There has been a resurgence of securities lending demand for Steinhoff International Holdings NV (SNH SJ) after the firm raised R3.75 billion from the sale of shares. The sale was at an offer price of R18.75 per share, representing a discount of 2.6% to Star’s closing price on Wednesday. The funds will help shore up its balance sheet following an accounting scandal late last year. Steinhoff said December 5 it had uncovered accounting irregularities and that CEO Markus Jooste quit. PwC is investigating the accounts, with a focus on off-balance-sheet transactions related to the central Europe operations, and the company is being probed by a host of regulators and law authorities around the world. Steinhoff International Holdings said two 2017 payments to former chairman Christo Wiese did not follow proper governance and disclosure processes, Bloomberg News reported. The stock fell as much as 34% during the week.