From the Securities Lending Trading Desk

In the U.S., Trading volume for MiMedx has spiked recently as investors placed bets on, or closed out of, shorts ahead of a shareholder meeting on Thursday and the completion of a Department of Justice audit. Japan-based Takeda Pharmaceutical Co. reached a preliminary agreement to buy Shire Plc for $64 billion. Whilst in Europe, two rights issues, Yapi Kredi Bankasi and Capita, are 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

Trading volume for MiMedx has spiked recently as investors placed bets on, or closed out of, shorts ahead of a shareholder meeting on Thursday and the completion of a Department of Justice audit. MiMedx, a developer and processor of regenerative biomaterial products, is embroiled in a DOJ investigation into its sales and distribution practices initiated in February and subsequently delayed the release of their Q4 2017 earnings. The price is down 54% from its 52-week high while demand has recently spiked, as speculation grows about the impending outcome of the inquiry and company performance.

Demand has persisted on Acacia Communications Inc (ACIA) after losing almost a third of its business two weeks ago.  In Mid-April, the Department of Commerce revoked Chinese chipmaker ZTE’s exporting privileges for violating terms of a sanctions violation case. ACIA held a 30% exposure to ZTE, and the news sent ACIA’s share price down by 36%. Gradual recovery for the communication equipment manufacturer is expected but with continued exposure to China amidst a potential trade war, short interest continues to drive demand.

Asia Pacific

Takeda Pharmaceutical Co. reached a preliminary agreement to buy Shire Plc for $64 billion. Takeda Pharmaceutical Co. plans to acquire Shire Plc’s lucrative therapies in a bid to transform Japan’s biggest drug maker into a global player. Takeda Pharmaceutical Co. will finance the deal with tens of billions of dollars of debt which has investors concerned. Credit rating companies pointed out that the purchase could hurt Takeda Pharmaceutical Co.’s current rating, and will take rating action if the deal is confirmed. We have seen strong lending demand for Takeda Pharmaceutical Co.

Technology stocks fell in HK trading after the US announced plans to investigate Chinese equipment manufacturer Huawei Technologies Co. over possible Iran sanctions violations. The announcement led to sharp declines in the share price of Huawei Technologies Co. suppliers including Chinasoft International, Sunny Optical Technology Group Co. Ltd and Tongda Group. We saw strong lending demand for Tongda Group following the announcement.

Europe

Intrum Justitia short interest volatility climbs as the Swedish debt collector forms partnership with Intesa Sanpaolo to service non-performing loans in Italy. Intrum Justitia, among the top Stoxx Euro 600 shorts this spring, saw short covering as shares jumped 11% following news of the joint venture with Intesa Sanpaolo. Shorts piled back in last week and market utilization climbed heading into the company’s May 2nd record date. Overall, European short exposure increased in April. Other popular shorts were Altice, BB Biotech, ICA Gruppen, Dufry, and Telecom Italia.

Two rights issues, Yapi Kredi Bankasi and Capita, drive securities lending demand. Yapi Kredi Bankasi plans to raise 4.1 billion liras ($1 billion) through a rights offer to bolster its balance sheet. Yapi Kredi fell as much as 3.2 percent on the news. The news has been long awaited to close the core capital adequacy ratio of 10.9% compared with an average of 14% for the Turkish banking industry. No dates have been announced yet. Capita will be raising £700 million after the company announced a loss of £513 million in 2017. Shares increased by more than 13% after the announcement. The trading period will start on 10th May until 24th May.