From the Securities Lending Trading Desk

In the U.S this week we’ve seen increased demand for online dating specialist Match Group after news surfaced that Facebook will launch its own dating service. Chinese smartphone manufacturer Xiaomi Corp filed for an IPO in Hong Kong. In Europe, Sainsbury and Asda proposed merger creates increased demand for the UK grocery store.

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 have seen increased demand for online dating specialist Match Group after news surfaced that Facebook will launch its own dating service. Shares plummeted to their worst day ever on May 1st, falling 22.1%. Match has dominated the online dating subscription service space for years, but this move could now impact the stock for several quarters as competing with Facebook is no small task. One brokerage firm downgraded the stock to “hold” from “buy” and cut its price target from $50 to $40. Match is scheduled to report earnings after the close on Tuesday, May 8, indicating another big move could be on the horizon. This will determine if the rise in bearish bets, which has driven borrow fees higher, is on point.

There has been an uptick in short interest for Sprint Corp after T-Mobile agreed to acquire the company for $26.5 billion in stock, creating the second-largest mobile carrier in the U.S. Sprint shares fell 13.6% on the day of the news, suggesting that investors are wary of the proposed merger amid concerns that regulators could block a deal that would reduce competition in the country’s wireless network space. During the Obama administration the proposed marriage between the two carriers was blocked on concerns the consolidation would reduce choices for consumers and ultimately lead to higher prices. Some analysts are giving the transaction only 50-50 odds of completion. Wall Street believes if the deal collapses, Sprint cannot carry on by itself. The increase in demand has pushed borrowing fees higher.

Asia Pacific

BYD Co Ltd.’s share price fell sharply in Hong Kong trading, after the Chinese electric vehicle manufacturer predicted profit may fall by as much as 83%. The selloff wiped off almost USD 9 billion of BYD Co Ltd.’s market value as brokers downgraded the stock, and investors began to lose faith that the company can compete with fewer government subsidies. Shares in BYD Co Ltd have now surrendered almost all of the gains seen last year when China announced plans to phase out fossil fuelled cars. We continue to see strong lending demand for BYD Co Ltd.

Chinese smartphone manufacturer Xiaomi Corp filed for an IPO in Hong Kong, starting a process expected to raise USD 10 billion and value the company at USD 100 billion. Xiaomi Corp is taking advantage of changes by the Hong Kong Exchange that allows companies with different share classes to list. According to earning documents, Xiami Corp’s revenue surged 67.5% to 114.5 billion yuan ($18 billion) in 2017, after posting growth of 2.4% a year earlier. It’s expected that the rule change by Hong Kong Exchange could lead to more Hong Kong IPOs in the future, potentially increasing lending returns.

Europe

Sainsbury and Asda proposed merger creates increased demand for the UK grocery store. The desk has seen demand for Sainsburys this week after the grocery retailer announced on Monday the details of a proposed $15 billion merger with Asda. The resulting entity would be bringing together the 2nd and 3rd largest grocers, taking over the top spot from Tesco in the sector, with combined revenues of £51 billion. Asda’s US owner Walmart, will receive just under £3 billion in cash plus a 42% stake in the combined business. The merger comes at a time when the major powerhouses of the UK grocery market are facing increased pressure from German-owned discounters Aldi and Lidl, as well as the increased pressure from online competitors Amazon and Ocado. Shares in Sainsburys jumped as much as 20% after the news on Monday with the deal likely to be reviewed by the Competition Commission prior to its planned completion by the end of 2019.

Demand for Spanish company Quabit Inmobilia increased this week as the rights trading period is underway. There has been a healthy spread between the ordinary and rights line for Quabit Inmobilia which has resulted in increased shorts for ordinary stock. The company will raise EUR 63million while the trading period ends 11th May. Strong demand has persisted for Capita ahead of the rights trading period, starting 10th of May. Capita will raise approximately £700million.